third quarter 2015 report - cineplexirfiles.cineplex.com/.../2015/q3-2015-report.pdfdear fellow...

2015

CINEPLEX INC.

THIRD QUARTER 2015 REPORT

Dear fellow shareholders, I am pleased to report that Cineplex Inc. delivered another strong quarter. We established new third quarter record results for all revenue sources including Total revenue, up 9.8% to $328.2 million and adjusted EBITDA up 23.0% to $59.1 million. Box Office revenue increased 6.1% to $172.6 million, Food Service revenue grew 14.5% to $105.5 million, Media revenue increased 7.2% to $34.3 million, and Other revenue was up 29.1% to $15.9 million. Stronger performing film product compared to the prior year quarter resulted in an attendance increase of 7.6% to 19.4 million guests, another third quarter record for Cineplex. Key accomplishments during the quarter included our entrance into the world of eSports through the acquisition of an 80% interest in the operating assets of WG Limited, a leading online gaming platform. This acquisition resulted in the creation of a new company focused on creating a community that connects live online gaming with unique in-theatre tournament experiences that will be held in Cineplex theatres across the country. During the quarter we announced plans to open a second location for our new social entertainment destination, The Rec Room. This will consist of a 50,000 square foot dining, entertainment and amusement gaming complex which we anticipate will open in December 2016 in Deerfoot City, formerly known as Deerfoot Mall, in Calgary, Alberta. Our SCENE loyalty program continued to grow, adding approximately 300,000 new members to finish the third quarter at more than 7.0 million members. We also added a new program partner, CARA Operations Limited, enabling members to earn and redeem points at over 800 CARA restaurants across Canada. Several milestones were achieved subsequent to quarter end. We completed the acquisition of the remaining 50% of issued and outstanding equity of Cineplex Starburst Inc. that we did not already own making Cineplex the 100% owner of its amusement gaming business in North America. Cineplex Digital Networks announced that it had been selected by A&W Food Services of Canada Inc. to become the sole provider of digital menu boards for its 850+ restaurants across Canada, and Vividata, a new Canadian measurement organization, reported that Cineplex Magazine became the #1 most read magazine for all demographics under age 50 and the #2 most read magazine in Canada. Finally, we announced a term extension to our agreement with Scotiabank for the SCENE program which will now run for 10 more years. This extension also includes naming rights for two additional Scotiabank Theatres, and Scotiabank’s annual commitment with Cineplex Media. We are very pleased to be continuing this successful partnership. In the fourth quarter, we will complete the addition of VIP Cinemas to our Yonge-Eglinton location in Toronto which will be renamed to Cineplex Cinemas Yonge-Eglinton and VIP. Early next year, we’ll celebrate the opening of our newest theatre in the Marine Gateway area in south Vancouver, which will feature seven traditional auditoriums, one UltraAVX auditorium and three VIP Cinemas. The film slate for the fourth quarter of 2015 is expected to be one of the biggest in our history, led by the highly anticipated film Star Wars Episode VII: The Force Awakens. The film has already broken pre-sale ticket records for Cineplex and is expected to be one of the highest grossing films of all-time. We believe we are well-positioned to amplify on the strength of the film slate with our premium experiences along with our food service and media offerings. We will also continue our emphasis on diversification through new initiatives like The Rec Room and eSports, in addition to amusement gaming and digital media.

On behalf of the Board of Directors and everyone at Cineplex, I’d like to wish you all a very happy and healthy holiday season. Sincerely,

Ellis Jacob, President and CEO

Cineplex Inc.Management’s Discussion and Analysis———————————————————————————————————————————

CINEPLEX INC. 2015 THIRD QUARTER REPORTMANAGEMENT’S DISCUSSION & ANALYSIS 1

MANAGEMENT’S DISCUSSION AND ANALYSIS

November 9, 2015

Cineplex Inc. (“Cineplex”) owns 100% of Cineplex Entertainment Limited Partnership (the “Partnership”). The following management’s discussion and analysis (“MD&A”) of Cineplex’s financial condition and results of operations should be read together with the consolidated financial statements and related notes of Cineplex (see Section 1, Overview of Cineplex). These financial statements, presented in Canadian dollars, were prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), defined as International Financial Reporting Standards (“IFRS”) as set out in the Handbook of the Canadian Institute of Chartered Professional Accountants.

Unless otherwise specified, all information in this MD&A is as of September 30, 2015.

MANAGEMENT’S DISCUSSION AND ANALYSIS CONTENTS

Section Contents Page1 Overview of Cineplex2 Theatre exhibition industry3 Business strategy4 Overview of operations5 Results of operations6 Balance sheets7 Liquidity and capital resources8 Adjusted free cash flow and dividends9 Share activity

10 Seasonality and quarterly results11 Related party transactions12 Significant accounting judgments and estimation uncertainties13 Accounting policies14 Risk management15 Controls and procedures16 Subsequent event17 Outlook18 Non-GAAP measures

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1125273133353636373843434346



Non-GAAP MeasuresCineplex reports on certain non-GAAP measures that are used by management to evaluate performance of the Partnership and Cineplex. In addition, non-GAAP measures are used in measuring compliance with debt covenants. Because non-GAAP measures do not have standardized meanings, securities regulations require that non-GAAP measures be clearly defined and qualified, and reconciled to their nearest GAAP measure. The definition, calculation and reconciliation of non-GAAP measures are provided in Section 18, Non-GAAP measures.

Forward-Looking StatementsCertain information included in this MD&A contains forward-looking statements within the meaning of applicable securities laws. These forward-looking statements include, among others, statements with respect to Cineplex’s objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to Cineplex’s beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, including those described in Cineplex’s Annual Information Form (“AIF”) and in this MD&A. Those risks and uncertainties, both general and specific, give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Cineplex cautions readers not to place undue reliance on these statements, as a number of important factors, many of which are beyond Cineplex’s control, could cause actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, risks generally encountered in the relevant industry, competition, customer, legal, taxation and accounting matters.

The foregoing list of factors that may affect future results is not exhaustive. When reviewing Cineplex’s forward-looking statements, readers should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the “Risk Management” section of this MD&A.

Cineplex does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable Canadian securities law. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Cineplex or the Partnership, their financial or operating results or their securities. All forward-looking statements in this MD&A are made as of the date hereof and are qualified by these cautionary statements. Additional information, including Cineplex’s AIF, can be found on SEDAR at www.sedar.com.

1. OVERVIEW OF CINEPLEX

Cineplex Galaxy Income Fund (the “Fund”) was formed on November 26, 2003. On January 1, 2011, the Fund effected a reorganization, converting to an Ontario corporation, Cineplex, for tax efficiency and business purposes. Cineplex is Canada’s largest film exhibition operator with theatres in ten provinces.

Cineplex’s theatre circuit is concentrated in major metropolitan and mid-sized markets. As of September 30, 2015, Cineplex owned, leased or had a joint venture interest in 1,652 screens in 162 theatres.



CineplexLocations and screens at September 30, 2015

Province Locations Screens 3D Screens UltraAVXIMAX

Screens (i)VIP

AuditoriumsD-Box

LocationsOntario 67 718 342 34 12 32 21Quebec 21 257 100 10 3 4 6British Columbia 23 215 109 12 3 8 4Alberta 17 193 97 16 2 3 5Nova Scotia 13 92 44 1 1 — —Saskatchewan 6 54 28 2 — 3 1Manitoba 5 49 26 1 1 3 1New Brunswick 5 41 20 1 — — —Newfoundland & Labrador 3 20 9 — 1 — —Prince Edward Island 2 13 6 — — — —TOTALS 162 1,652 781 77 23 53 38Percentage of screens 47% 5% 1% 3% 2%(i) All IMAX screens are 3D enabled. Total 3D screens including IMAX screens is 804 screens or 49% of the circuit.

Cineplex - Theatres, screens and premium offerings in the last eight quarters2015 2014 2013

Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4Theatres 162 162 161 161 161 162 161 161Screens 1,652 1,652 1,648 1,639 1,639 1,638 1,632 1,6303D Screens 781 781 778 767 767 764 738 723UltraAVX Screens 77 77 70 66 66 66 60 55IMAX Screens 23 22 20 20 20 20 20 20VIP Auditoriums 53 53 50 43 43 38 33 28D-Box Locations 38 33 28 25 21 21 21 21

1.1 FINANCIAL HIGHLIGHTS

Financial highlights Third Quarter Year to Date(in thousands of Canadian dollars, exceptattendance in thousands of patrons and perShare and per patron amounts) 2015 2014 Change (i) 2015 2014 Change (i)

Total revenues $ 328,246 $ 298,990 9.8% $ 963,571 $ 902,505 6.8%Attendance 19,407 18,038 7.6% 56,640 54,611 3.7%Net income $ 21,439 $ 15,914 34.7% 57,444 44,190 30.0%Box office revenues per patron (“BPP”) (ii) $ 8.89 $ 9.01 -1.3% $ 9.09 $ 9.16 -0.8%Concession revenues per patron (“CPP”) (ii) $ 5.43 $ 5.11 6.3% $ 5.38 $ 5.08 5.9%Adjusted EBITDA (ii) $ 59,081 $ 48,042 23.0% $ 164,639 $ 138,353 19.0%Adjusted EBITDA margin (ii) 18.0% 16.1% 1.9% 17.1% 15.3% 1.8%Adjusted free cash flow (ii) $ 35,860 $ 35,883 -0.1% $ 104,349 $ 102,966 1.3%Adjusted free cash flow per common share ofCineplex (“Share”) (ii) $ 0.568 $ 0.570 -0.4% $ 1.655 $ 1.635 1.2%Earnings per Share (“EPS”) attributable toowners of Cineplex - basic $ 0.34 $ 0.25 36.0% $ 0.91 $ 0.70 30.0%EPS attributable to owners of Cineplex - diluted $ 0.34 $ 0.25 36.0% $ 0.90 $ 0.70 28.6%

(i) Throughout this MD&A, changes in percentage amounts are calculated as 2015 value less 2014 value.(ii) See Section 18, Non-GAAP measures.



Total revenues for the third quarter of 2015 increased 9.8%, or $29.3 million compared to the prior year period due to increases in box office, food service and media revenues. The largest increase was in food service revenues, which increased 14.5% due to the increase in attendance and the record third quarter CPP of $5.43. Media revenues increased 7.2%, or $2.3 million, with the increase primarily due to higher showtime revenues. Adjusted EBITDA increased $11.0 million (23.0%) to $59.1 million primarily due to the higher theatre attendance and resulting increases in exhibition, food service and media revenues over the prior year period. Adjusted free cash flow per Share was $0.568, a $0.002 decrease from $0.570 in the prior year period, with the decrease due to the prior period benefiting from the use of loss carryforwards reducing current income taxes payable in that period.

Total revenues for the nine months ended September 30, 2015 increased 6.8%, or $61.1 million compared to the prior year period as a result of higher revenues in all major categories. The largest component of this increase is food service revenues due to the record CPP and the 3.7% increase in attendance compared to the prior year period. Adjusted EBITDA increased 19.0% to $164.6 million as a result of the revenue increases in all major categories as well as the record CPP. Adjusted free cash flow per Share increased 1.2%, to $1.655 in the current period from $1.635 in the 2014 period.

1.2 KEY DEVELOPMENTS IN THE THIRD QUARTER OF 2015

The following describes certain key business initiatives undertaken and results achieved during the third quarter in each of Cineplex’s core business areas:

THEATRE EXHIBITION• Reported third quarter box office revenues of $172.6 million, an increase of $10.0 million (6.1%) from

the $162.6 million reported in the prior year period due to stronger performing film product in the current period compared to the prior year.

• Both box office revenues and attendance results are third quarter records for Cineplex.

FOOD SERVICE• Reported record third quarter food service revenues of $105.5 million, an increase of $13.4 million

(14.5%) over the $92.1 million reported in the prior year period.• CPP was $5.43 for the period, a third quarter record for Cineplex, and $0.32 (6.3%) higher than the

$5.11 reported in the prior year period. • Opened six YoYo’s Yogurt Cafe (“YoYo’s”) locations in the third quarter, bringing the total number of

YoYo’s locations operated by Cineplex to 69.

AMUSEMENT GAMING AND THE REC ROOM• Acquired an 80% interest in the operating assets of WG Limited through Cineplex’s subsidiary,

WorldGaming Network LP (“WGN”). This acquisition resulted in the creation of a new company focused on eSports by creating a community that connects live online gaming with unique in-theatre tournament experiences to be held in Cineplex theatres across the country.

• Announced plans to build Cineplex’s second The Rec Room location in Calgary, Alberta, a 50,000 square foot dining and entertainment complex scheduled to open in December 2016 in Deerfoot City.

• Opened two new XSCAPE Entertainment Centres in the period, bringing the total number of XSCAPE locations across the circuit to 22.

• Subsequent to the period end, on October 1, 2015, announced that Cineplex had completed the acquisition of the remaining 50% of issued and outstanding equity of Cineplex Starburst Inc. (“CSI”) that it did not already own, for approximately $21.0 million cash (see Section 16, Subsequent event).

MEDIA• Total media revenues increased $2.3 million, or 7.2%, in the third quarter compared to the prior year

period, with Cineplex Media increasing $2.6 million (11.4%), offset by a decrease in Cineplex Digital Media revenues of $0.3 million (2.7%) due to lower project revenues in the period, partially offset by higher advertising revenues including the TimsTV and Oxford shopping mall networks.

• Cineplex Media revenues increased due to robust showtime advertising sales, with strong results seen



in the automotive sector advertising.

ALTERNATIVE PROGRAMMING• Alternative programming in the third quarter of 2015 included live and encore performances from the

Metropolitan Opera: Live in HD series, ethnic film programming, In The Gallery presentations and encore presentations of The National Theatre Live.

DIGITAL COMMERCE• Cineplex.com registered a 23% increase in unique visitors and a 28% increase in visits during the third

quarter of 2015 compared to the prior year period. • As at September 30, 2015, the Cineplex app had been downloaded 12.8 million times and recorded

over 708 million app sessions.

LOYALTY• Membership in the SCENE loyalty program increased by 0.3 million members in the period, with

membership reaching approximately 7.1 million at September 30, 2015. • During the period, the ability to earn and redeem points was launched at CARA Operations Limited

(“CARA”) restaurant brands which includes over 800 restaurants across Canada. CARA brands include Swiss Chalet Rotisserie & Grill, Harvey’s, Milestones Grill & Bar, Montana’s BBQ & Bar, Kelsey’s, East Side Mario’s, Prime Pubs and Bier Markt.

• SCENE announced changes to the earn and redemption rates for premium movie experiences effective November 4, 2015, with members earning and redeeming SCENE points based on the type of movie experience they choose. Premium movies will earn 50% more points and require 50% more points for redemption, and VIP movies will earn 100% more points and require 100% more points for redemption.

1.3 BUSINESS ACQUISITION

WorldGaming Network LP

On September 17, 2015, Cineplex acquired an 80% interest in the operating assets of WG Limited through Cineplex’s subsidiary, WGN. WGN is a leading online gaming platform that facilitates tournaments, leagues and gaming ladders for the competitive gaming community. Intertaintech Corporation, an affiliate of WG Limited owns the other 20% of WGN.

The total cash consideration paid was $19.8 million. Transaction costs of $0.4 million associated with the transaction were expensed as incurred.

Recognized amounts of identifiable assets acquired and liabilities assumed are as follows (in thousands of Canadian dollars):



Assets acquired and liabilities assumedNet working capital, including cash of $7,285 $ 5,865Intangible assets, including software 18,754Property and equipment, including software 77Non-controlling interests (4,939)

Net assets 19,757Less: Cash from acquisition (7,285)

$ 12,472

Consideration given - cash paid $ 19,757Less: Cash from acquisition (7,285)

$ 12,472

As at September 30, 2015, the fair value assigned to the assets and liabilities have been determined on a provisional basis, pending finalization of the post-acquisition review of the fair value of the software and equipment acquired, and liabilities assumed. The non-controlling interests have been valued at the acquisition date fair value. Any variations may be material.

WGN’s functional currency is the United States dollar, resulting in a cumulative translation adjustment at each balance sheet date. The cumulative translation adjustment is presented in equity.

Since the acquisition, WGN did not have material revenues or income. Cineplex’s reported revenues and income would not have been materially different if the acquisition had occurred at January 1, 2015.

For the thirty-six month period beginning one year after the acquisition, Intertaintech Corporation has the right, but not the obligation to require Cineplex to acquire their entire 20% interest in WGN at fair value. Cineplex has recognized an initial liability of USD $3.8 million, ($4.9 million based on the exchange rate on the transaction date), equivalent to the initial fair value of the non-controlling interests, reducing contributed surplus by $4.9 million. Fluctuations in value due to exchange rates or changes in the underlying value of the option are presented in the statement of operations. The $5.0 million balance based on the exchange rate as at September 30, 2015 is included in accounts payable and accrued liabilities.

Cineplex has the right, but not the obligation, to acquire Intertaintech Corporation’s entire 20% interest in WGN at fair value at any time beginning two years after the acquisition.

2. THEATRE EXHIBITION INDUSTRY

The motion picture industry consists of three principal activities: production, distribution and exhibition. Production involves the development, financing and creation of feature-length motion pictures. Distribution involves the promotion and exploitation of motion pictures in a variety of different channels. Theatrical exhibition is the primary channel for new motion picture releases and is the core business function of Cineplex. A detailed discussion of the motion picture exhibition industry in Canada can be found in Cineplex’s MD&A for the year ended December 31, 2014.



3. BUSINESS STRATEGY

Cineplex’s mission statement is “Passionately delivering an exceptional entertainment experience.” All of its efforts are focused towards this mission and it is Cineplex’s goal to consistently provide guests with an exceptional entertainment experience at a fair value. Cineplex’s key strategic areas of focus include the following:

• Continue to enhance and expand existing exhibition infrastructure and service offerings to attract new customers, increase the frequency of visits by existing customers and maximize revenue per patron;

• Capitalize on core media strengths to provide continued growth of Cineplex’s media business, with its own assets and with external clients;

• Continue to expand Cineplex’s brand presence as an entertainment destination for Canadians, providing in-theatre, at home and on-the-go experiences - Cineplex Anywhere; and

• Pursue selective acquisitions and opportunities that are strategic, accretive and capitalize on Cineplex’s core strengths.

Key elements of this strategy include going beyond movies to reach customers in new ways and maximizing revenue per patron. With this in mind, Cineplex has implemented in-theatre initiatives to improve the overall entertainment experience, including increased premium offerings, enhanced in-theatre services, alternative pricing strategies, continued development of the SCENE loyalty program and initiatives in merchandising such as optimizing product offerings and improving service execution. The ultimate goal of these in-theatre customer service initiatives is to maximize revenue per patron and increase the frequency of movie-going at Cineplex’s theatres.

While box office revenues (which include alternative programming) continue to account for the largest portion of Cineplex’s revenues, expanded food service offerings, in-theatre and out of home advertising, gaming options provided through family entertainment centres (“FEC”) and other stand-alone gaming options, promotions and other revenue streams have increased as a share of total revenues. The margins on these other revenue streams, particularly advertising, are much higher than on admission sales and have enhanced Cineplex’s profitability. Cineplex is committed to diversifying its revenue streams outside of the traditional theatre exhibition model through pre-show, showtime and digital out of home advertising sales through



Cineplex Media, as well as further expansion of digital signage installations, network support and advertising sales through Cineplex Digital Media which includes the Cineplex digital lobby network as well as Cineplex Digital Solutions (“CDS”) and Cineplex Digital Networks (“CDN”). Additionally, at home and on-the-go entertainment options are available through the Cineplex Store, Cineplex’s online digital commerce platform, which sells DVDs, Blu-ray discs, download-to-own (“DTO”) and video-on-demand (“VoD”) movies online.

A detailed discussion of Cineplex’s business strategy can be found in Cineplex’s MD&A for the year ended December 31, 2014. That strategy has not changed materially during the third quarter of 2015.

4. OVERVIEW OF OPERATIONS

Revenues

Cineplex generates revenues primarily from box office and concession sales. These revenues are affected primarily by attendance levels and by changes in BPP and CPP. Box office revenue represented 52.6% of revenue in the third quarter of 2015 and continues to represent Cineplex’s largest revenue component.

Revenue mix % by year Q3 2015 Q3 2014 Q3 2013 Q3 2012 Q3 2011

Box office 52.6% 54.4% 56.3% 57.7% 58.7%

Food service 32.1% 30.8% 30.7% 30.6% 29.7%

Media 10.4% 10.7% 9.3% 9.7% 8.0%

Other 4.9% 4.1% 3.7% 2.0% 3.6%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

A key component of Cineplex’s business strategy is to position itself as the leading exhibitor in the Canadian market by focusing on providing customers with an exceptional entertainment experience. Cineplex’s share of the Canadian theatre exhibition market was approximately 78% based on Canadian industry box office revenues for the year ended December 31, 2014. As a result of Cineplex’s focus on diversifying the business beyond the traditional movie exhibition model, the revenue mix has shifted from box office revenue to other revenue sources. This revenue source typically provides a higher incremental contribution margin than traditional exhibition revenues.

The commercial appeal of the films and alternative content released during a given period, and the success of marketing as well as promotion for those films by film studios, distributors and content providers all drive attendance. BPP is affected by the mix of film and alternative content product that appeals to certain audiences (such as children or seniors who pay lower ticket prices), the surcharge related to 3D film and other enhanced product offerings, ticket prices during a given period and the appeal of premium priced product available. While BPP is negatively impacted by the SCENE loyalty program and the Cineplex Tuesdays program, these programs are designed to increase attendance frequency at Cineplex’s theatres. Cineplex’s main focus is to drive incremental visits to theatres, to employ a ticket price strategy which takes into account the local demographics at each individual theatre, and to maximize BPP through premium offerings.

Food service revenues are comprised primarily of concession revenues, arising from food sales at theatre locations. CPP represents concession revenues divided by theatre attendance, and is impacted by concession product mix, concession prices, film genre, promotions, the 10% SCENE discount and the issuance of SCENE points on the purchase of certain concession combos. Film product targeted to families and teenagers tends to result in a higher CPP and more adult-oriented product tends to result in a lower CPP. As a result, CPP can fluctuate from quarter to quarter depending on the genre of film product playing. The 10% SCENE discount offer and SCENE points issued on concession purchases both decrease concession revenue on individual purchases. However, Cineplex believes the program drives incremental attendance and purchase incidence, increasing overall revenues. Although pricing has an impact on CPP, Cineplex focuses on growing CPP by optimizing the product offerings and improving operational excellence to increase purchase incidence and transaction value.



Cineplex Media generates revenues from selling pre-show and showtime advertising in Cineplex’s theatres and through magazine advertising for Cineplex Magazine and Le Magazine Cineplex. In addition, it offers special media placements throughout Cineplex’s circuit including the Interactive Media Zones in select Cineplex thetare lobbies and sells digital advertising for cineplex.com and the Cineplex mobile app. Cineplex Media also sells advertising through representation sales agreements and sells digital advertising on third party networks. Cineplex Digital Media designs, installs, maintains and operates digital signage networks through both CDS and CDN.

Games revenues include Cineplex’s XSCAPE Entertainment Centres and game rooms in theatres. Cineplex also generates adjusted EBITDA from its 50% share of CSI. CSI supplies and services all of the games in Cineplex’s circuit while also supplying equipment to third party arcades, amusement parks and centres, bowling alleys and theatre circuits in Canada and the US, in addition to owning and operating Playdium, an FEC located in Mississauga, Ontario. At September 30, 2015, Cineplex had a commitment to acquire the 50% of the issued and outstanding equity of CSI that it does not already own. This transaction closed on October 1, 2015 (see Section 16, Subsequent event), with Cineplex now owning 100% of the issued and outstanding equity of CSI. During the year ended December 31, 2014, CSI generated $60.6 million in gross gaming revenues inclusive of revenues earned from Cineplex. During 2015, CSI, through its wholly owned subsidiary Premier Amusements Inc., acquired an 80% interest in Brady Starburst LLC. The new company, formed with Brady Distribution Company, created one of North America’s largest distributors of amusement games and vending machines. In addition, through WGN, games revenues include revenues from WGN online gaming events.

Cineplex generates other revenues from the Cineplex Store, promotional activities, screenings, private parties, corporate events, breakage on gift card sales, revenues from enhanced in-theatre initiatives and management fees.

Cost of Sales and Expenses

Film cost represents the film rental fees paid to distributors on films exhibited in Cineplex theatres. Film costs are calculated as a percentage of box office revenue and are dependent on various factors including the performance of the film. Film costs are accrued on the related box office receipts at either mutually agreed-upon terms established prior to the opening of the film, or estimated terms where a mutually agreed settlement is reached upon conclusion of the film’s run, depending upon the film licensing arrangement. Although the film cost percentage is relatively stable when reviewed on an annual basis, there can be significant variances throughout the quarters depending on the concentration of box office revenues from a few titles.

Cost of food service represents the cost of concession items and other food service items sold and varies with changes in concession and other food service revenues as well as the quantity and mix of concession and other food service offerings sold. The 10% discount offered to members of the SCENE loyalty program affects the concession cost percentage, as food service revenues relating to these sales are reduced by 10% while the corresponding cost remains constant.

Depreciation and amortization represents the depreciation of Cineplex’s property, equipment and leaseholds, as well as amortization of certain of its intangible assets. Depreciation and amortization are provided on the straight-line basis over the useful lives of the assets.

Loss on disposal of assets represents the loss recognized on assets or components of assets that were sold or otherwise disposed.

Other costs are comprised of theatre occupancy expenses, other operating expenses, and general and administrative expenses. These categories are described below.

Theatre occupancy expenses include lease related expenses, property and business related taxes and insurance. Lease expenses are primarily a fixed cost at the theatre level because Cineplex’s theatre leases generally require a fixed monthly minimum rent payment. However, certain of Cineplex’s theatre leases also include a percentage



rent clause whereby the landlord is paid an additional amount of rent based either in part or wholly upon box office revenues. Other operating expenses consist of fixed and variable expenses, with the largest component being theatre salaries and wages. Although theatre salaries and wages include a fixed cost component, these expenses vary in relation to revenues as theatre staffing levels are adjusted to handle fluctuations in attendance. Other components of this category include marketing and advertising, media, loyalty including SCENE, interactive, gaming, supplies and services, utilities and maintenance. General and administrative expenses are primarily costs associated with managing Cineplex’s business, including film buying, marketing and promotions, operations and concession management, accounting and financial reporting, legal, treasury, construction and design, real estate development, information systems and administration. Included in these costs are payroll (including Cineplex’s long-term incentive plan (“LTIP”) and Share option plan costs) and occupancy costs related to Cineplex’s corporate offices, professional fees (such as public accountant and legal fees) and travel and related costs. Cineplex maintains general and administrative staffing and associated costs at a level that it deems appropriate to manage and support the size and nature of its theatre portfolio and its business activities.

Accounting for Joint Arrangements

The financial statements incorporate the operating results of joint arrangements in which Cineplex has an interest using either the equity accounting method (for joint ventures) or recognizing Cineplex’s share of the assets, liabilities, revenues and expenses in Cineplex’s consolidated results (for joint operations), as required by GAAP.

Under IFRS 11, Cineplex’s 50% share of one IMAX screen in Ontario, 78.2% interest in the Canadian Digital Cinema Partnership (“CDCP”), 50% interest in CSI and 50% interest in YoYo’s are classified as joint ventures. Through equity accounting, Cineplex’s share of the results of operations for these joint ventures are reported as a single item in the statements of operations, ‘Share of income of joint ventures’. Theatre attendance for the IMAX screen held in the joint venture is not reported in Cineplex’s consolidated attendance as the line-by-line results of the joint ventures are not included in the relevant lines in the statement of operations.

At September 30, 2015, Cineplex had a commitment to acquire 50% of the issued and outstanding equity of CSI that it did not already own, for a minimum of $17.5 million in cash. The transaction closed on October 1, 2015 (see Section 16, Subsequent event), with Cineplex now owning 100% of the issued and outstanding equity of CSI and will consolidate its results as of that date.

Under IFRS 11, Cineplex’s 50% interest in SCENE LP is classified as a joint operation and Cineplex recognizes its share of the assets, liabilities, revenues and expenses of SCENE in its consolidated financial statements.



5. RESULTS OF OPERATIONS

5.1 SELECTED FINANCIAL DATA

The following table presents summarized financial data for Cineplex for the three and nine months ended September 30, 2015 and 2014 (expressed in thousands of Canadian dollars except Shares outstanding, per Share data, and per patron data, unless otherwise noted):

Threemonths

endedSeptember

30, 2015

Threemonths

endedSeptember

30, 2014Variance

(%)

Ninemonths

endedSeptember

30, 2015

Ninemonths

endedSeptember

30, 2014Variance

(%)

Box office revenues $ 172,571 $ 162,574 6.1% $ 514,814 $ 500,218 2.9%Food service revenues 105,464 92,094 14.5% 304,646 277,261 9.9%Media revenues 34,296 31,992 7.2% 98,388 87,337 12.7%Other revenues 15,915 12,330 29.1% 45,723 37,689 21.3%Total revenues 328,246 298,990 9.8% 963,571 902,505 6.8%

Film cost 91,567 85,499 7.1% 273,893 260,907 5.0%Cost of food service 22,325 19,848 12.5% 65,694 59,876 9.7%Depreciation and amortization 22,111 19,665 12.4% 64,813 57,528 12.7%Loss on disposal of assets 987 834 18.3% 2,337 2,767 -15.5%Other costs (a) 156,743 146,974 6.6% 463,011 446,397 3.7%Costs of operations 293,733 272,820 7.7% 869,748 827,475 5.1%

Net income $ 21,439 $ 15,914 34.7% $ 57,444 $ 44,190 30.0%

Adjusted EBITDA (i) $ 59,081 $ 48,042 23.0% $ 164,639 $ 138,353 19.0%

(a) Other costs include:Theatre occupancy expenses 51,239 50,781 0.9% 152,821 152,034 0.5%Other operating expenses 89,801 83,717 7.3% 259,952 251,465 3.4%General and administrative expenses 15,703 12,476 25.9% 50,238 42,898 17.1%

Total other costs $ 156,743 $ 146,974 6.6% $ 463,011 $ 446,397 3.7%

Basic EPS $ 0.34 $ 0.25 36.0% $ 0.91 $ 0.70 30.0%Diluted EPS $ 0.34 $ 0.25 36.0% $ 0.90 $ 0.70 28.6%

Total assets $ 1,587,922 $ 1,538,285 3.2% $ 1,587,922 $ 1,538,285 3.2%Total long-term financial liabilities (ii) $ 417,500 $ 396,500 5.3% $ 417,500 $ 396,500 5.3%Shares outstanding at period end 63,086,749 62,990,791 0.2% 63,086,749 62,990,791 0.2%Cash dividends declared per Share $ 0.390 $ 0.375 4.0% $ 1.150 $ 1.105 4.1%Adjusted free cash flow per Share (i) $ 0.568 $ 0.570 -0.4% $ 1.655 $ 1.635 1.2%Box office revenue per patron (i) $ 8.89 $ 9.01 -1.3% $ 9.09 $ 9.16 -0.8%Concession revenue per patron (i) $ 5.43 $ 5.11 6.3% $ 5.38 $ 5.08 5.9%Film cost percentage (i) 53.1% 52.6% 0.5% 53.2% 52.2% 1.0%Attendance (in thousands of patrons) (i) 19,407 18,038 7.6% 56,640 54,611 3.7%Theatre locations (at period end) 162 161 0.6% 162 161 0.6%Theatre screens (at period end) 1,652 1,639 0.8% 1,652 1,639 0.8%(i) See Section 18, Non-GAAP measures, for the definitions of non-GAAP measures reported by Cineplex.(ii) Comprised of the principal components of long-term debt and convertible debentures. Excludes Share-based compensation, fair value of interest rate swap agreements, financing lease obligations, post-employment benefit obligations, other liabilities and deferred financing fees net against long-term debt and convertible debentures.



5.2 OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015

Total revenues

Total revenues for the three months ended September 30, 2015 increased $29.3 million (9.8%) to $328.2 million as compared to the prior year period. Total revenues for the nine months ended September 30, 2015 increased $61.1 million (6.8%) to $963.6 million as compared to the prior year period. A discussion of the factors affecting the changes in box office, food service, media and other revenues for the period is provided below.

Non-GAAP measures discussed throughout this MD&A, including adjusted EBITDA, adjusted free cash flow, attendance, BPP, premium priced product, same store metrics, CPP, film cost percentage, concession cost percentage and concession margin per patron are defined and discussed in Section 18, Non-GAAP measures.

Box office revenues

The following table highlights the movement in box office revenues, attendance and BPP for the quarter and the year to date (in thousands of Canadian dollars, except attendance reported in thousands of patrons, and per patron amounts):

Box office revenues Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Box office revenues $ 172,571 $ 162,574 6.1% $ 514,814 $ 500,218 2.9%Attendance (i) 19,407 18,038 7.6% 56,640 54,611 3.7%Box office revenue per patron (i) $ 8.89 $ 9.01 -1.3% $ 9.09 $ 9.16 -0.8%BPP excluding premium priced product (i) $ 8.10 $ 8.03 0.9% $ 8.25 $ 8.23 0.2%Canadian industry revenues (ii) 4.3% 1.8%Same store box office revenues (i) $ 168,866 $ 161,518 4.5% $ 501,677 $ 495,401 1.3%Same store attendance (i) 19,015 17,912 6.2% 55,265 54,080 2.2%% Total box from premium priced product (i) 34.5% 41.7% -7.2% 36.0% 40.7% -4.7%

(i) See Section 18, Non-GAAP measures.

(ii) The Movie Theatre Association of Canada (“MTAC”) reported that the Canadian exhibition industry reported a box office revenue increase of 4.5% for the period from July 3, 2015 to October 1, 2015 as compared to the period from July 4, 2014 to October 2, 2014. On a basis consistent with Cineplex’s calendar reporting period (July 1 to September 30), the Canadian industry box office revenue change is estimated to be an increase of 4.3%. MTAC reported that the Canadian exhibition industry reported a box office revenue increase of 2.3% for the period from January 3, 2015 to October 1, 2015 as compared to the period from January 4, 2014 to October 2, 2014. On a basis consistent with Cineplex’s calendar reporting period (January 1 to September 30), the Canadian industry box office revenues are estimated to be an increase of 1.8%.

Box office continuity Third Quarter Year to DateBox Office Attendance Box Office Attendance

2014 as reported $ 162,574 18,038 $ 500,218 54,611Same store attendance change 9,947 1,103 10,854 1,185Impact of same store BPP change (2,599) — (4,579) —New and acquired theatres (i) 3,565 378 10,050 1,045Disposed and closed theatres (i) (916) (112) (1,729) (201)2015 as reported $ 172,571 19,407 $ 514,814 56,640(i) See Section 18, Non-GAAP measures. Represents theatres opened, acquired, disposed or closed subsequent to the start of theprior year comparative period.



Third Quarter

Third Quarter 2015 Top Cineplex Films 3D%

Box Third Quarter 2014 Top Cineplex Films 3D%

Box1 Minions 13.7% 1 Guardians of the Galaxy 15.6%2 Mission: Impossible Rogue Nation 9.3% 2 Dawn of the Planet of the Apes 8.8%3 Ant-Man 6.9% 3 Teenage Mutant Ninja Turtles 6.7%4 Jurassic World 6.0% 4 Lucy 5.6%5 Inside Out 5.4% 5 Transformers: Age of Extinction 5.6%

Box office revenues increased $10.0 million, or 6.1%, to $172.6 million during the third quarter of 2015, compared to $162.6 million recorded in the same period in 2014. The increase was due to a 7.6% increase in attendance as a result of a stronger performing slate of films in the current period as compared to the prior year period.

BPP for the three months ended September 30, 2015 was $8.89, a $0.12 decrease from the prior year period. This decrease was due in part to the film mix in the period, with two of the top five films in the current period, which accounted for 19.1% of box office revenues, catering to family audiences, resulting in a higher percentage of child admissions which have a lower ticket price than adult admissions. Box office revenues from premium product accounted for 34.5% of box office revenues in the current period, down from 41.7% in the prior year period due in part to a lower percentage of 3D admissions in the current period compared to the prior year period more than offsetting higher revenues from UltraAVX, IMAX and VIP offerings. The decrease in 3D admissions is due in part to the higher proportion of family product in the current period compared to the prior year, which tends to have less 3D admissions, contributing to the lower BPP.



Year to Date

Year to Date 2015 Top Cineplex Films 3D%

Box Year to Date 2014 Top Cineplex Films 3D%

Box1 Jurassic World 7.7% 1 Guardians of the Galaxy 5.1%2 The Avengers: Age Of Ultron 5.8% 2 The Lego Movie 4.2%3 Minions 4.6% 3 Captain America: The Winter Soldier 3.8%4 Furious 7 4.3% 4 X-Men: Days of Future Past 3.4%5 Inside Out 3.7% 5 22 Jump Street 3.0%

Box office revenues for the nine months ended September 30, 2015 were $514.8 million, an increase of $14.6 million or 2.9% over the prior year due to the 3.7% increase in attendance more than offsetting the impact of the lower BPP in the current year period compared to the 2014 period. The attendance and box office revenues increases in the period were due to the strong performance of the film product in the second and third quarters of 2015. These increases were partially offset by the impact of extreme weather conditions in Atlantic Canada in the first quarter negatively impacting theatre attendance in the Atlantic Provinces in 2015.

Cineplex’s BPP for the period decreased $0.07, or 0.8%, from $9.16 in the prior year period to $9.09 in the current period. This decrease was primarily due to the decrease in revenues from 3D product in the current period compared to the prior year period, as well as a higher percentage of child admissions in the current period compared to the prior year period. Premium priced offerings accounted for 36.0% of Cineplex’s box office revenues in the nine months ended September 30, 2015, compared to 40.7% in the prior year period.

Food service revenues

The following table highlights the movement in food service revenues, attendance and CPP for the quarter and the year to date (in thousands of Canadian dollars, except attendance and same store attendance reported in thousands of patrons, and per patron amounts):

Food service revenues Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Food service revenues $ 105,464 $ 92,094 14.5% $ 304,646 $ 277,261 9.9%Attendance (i) 19,407 18,038 7.6% 56,640 54,611 3.7%CPP (i) $ 5.43 $ 5.11 6.3% $ 5.38 $ 5.08 5.9%Same store food service revenues (i) $ 102,839 $ 91,502 12.4% $ 295,430 $ 274,600 7.6%Same store attendance (i) 19,015 17,912 6.2% 55,265 54,080 2.2%

(i) See Section 18, Non-GAAP Measures.

Food service revenue continuity Third Quarter Year to DateFood Service Attendance Food Service Attendance

2014 as reported $ 92,094 18,038 $ 277,261 54,611Same store attendance change 5,635 1,103 6,016 1,185Impact of same store CPP change 5,701 — 14,814 —New and acquired theatres (i) 2,434 378 7,285 1,045Disposed and closed theatres (i) (400) (112) (730) (201)2015 as reported $ 105,464 19,407 $ 304,646 56,640(i) See Section 18, Non-GAAP measures. Represents theatres opened, acquired, disposed or closed subsequent to the start of theprior year comparative period.



Third Quarter

Food service revenues are comprised primarily of concession revenues, which includes food sales at theatre locations as well as non-theatre locations. Food service revenues increased $13.4 million, or 14.5% as compared to the prior year period primarily due to the 6.3% CPP increase and the 7.6% increase in attendance. CPP of $5.43 is a third quarter record for Cineplex. Expanded offerings outside of core food service products, including offerings at Cineplex’s VIP Cinemas, have resulted in higher average transaction values, resulting in the higher CPP in the period.

Year to Date

Food service revenues increased $27.4 million, or 9.9% as compared to the prior year, due to the 5.9% increase in CPP and the 3.7% increase in attendance. The CPP of $5.38 in the current period is the highest CPP Cineplex has reported through the first nine months of a year.

While the 10% SCENE discount and SCENE points issued on food service combo purchases reduce individual transaction values which impacts CPP, Cineplex believes that this program drives incremental visits and food service purchases, resulting in higher overall food service revenues.

Media revenues

The following table highlights the movement in media revenues for the quarter and the year to date (in thousands of Canadian dollars):

Media revenues Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Cineplex Media $ 25,029 $ 22,463 11.4% $ 70,363 $ 60,864 15.6%Cineplex Digital Media 9,267 9,529 -2.7% 28,025 26,473 5.9%Total media revenues $ 34,296 $ 31,992 7.2% $ 98,388 $ 87,337 12.7%(i) Certain prior period comparatives have been reclassified to conform to the current period’s presentation.



Third Quarter

Total media revenues increased 7.2% to $34.3 million in the third quarter of 2015 compared to the prior year period, and represents a third quarter media revenues record for Cineplex. This increase was largely due to higher Cineplex Media revenues, up $2.6 million as compared to the prior year period due primarily to higher showtime revenues resulting from increases in the automotive sector advertising.

Cineplex Digital Media revenues decreased $0.3 million due to lower project revenues as compared to the prior year period due to the timing of project installations in 2015 as compared to 2014. This decrease was partially offset by higher advertising and service revenues on various networks including the TimsTV and Oxford shopping mall networks. Project revenues tend to fluctuate with the timing of clients’ installation requirements, whereas other digital media revenue streams are more consistent period to period.

Year to Date

Total media revenues increased $11.1 million in the nine months ended September 30, 2015 compared to the prior year period. The increase was due to the $9.5 million increase in Cineplex Media revenues due primarily to higher showtime revenues and the $1.6 million increase in Cineplex Digital Media revenues, primarily due to higher digital advertising revenues including advertising on the TimsTV and Oxford shopping mall networks.

Other revenues

The following table highlights the movement in games and other revenues for the quarter and the year to date (in thousands of Canadian dollars):

Other revenues Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Games $ 2,523 $ 1,813 39.2% $ 7,016 $ 5,450 28.7%Other 13,392 10,517 27.3% 38,707 32,239 20.1%Total other revenues $ 15,915 $ 12,330 29.1% $ 45,723 $ 37,689 21.3%

Third Quarter

Other revenues include gaming revenues as well as revenues from the Cineplex Store, promotional activities, screenings, private parties, corporate events, breakage on gift card and voucher sales, revenues from in-theatre guest service initiatives and management fees. Games revenues do not include Cineplex’s 50% share of results of CSI, which are included in “Share of income of joint ventures”. Subsequent to the period end, Cineplex acquired the 50% of CSI that it did not already own on October 1, 2015 (see Section 16, Subsequent event). Effective that date, Cineplex will cease to recognize its share of income of CSI and instead will consolidate the results of CSI.



Other revenues increased 29.1% to $15.9 million in the third quarter of 2015 compared to the prior year period. This increase was primarily due to additional revenues arising from enhanced guest service initiatives and increased SCENE partner revenues. Games revenues increased due in part to the increased attendance in the period as well as the conversion of select gaming rooms to XSCAPE Entertainment Centres. Included in Other are increases in various in-theatre revenues including auditorium rentals and film festival revenues.

Year to Date

For the year to date period, other revenues have increased 21.3% compared to the prior year period primarily due to additional revenues arising from enhanced guest service initiatives and increased SCENE partner revenues. The games revenues increase is due to increased attendance, the conversion of select gaming rooms to XSCAPE Entertainment Centres as well as the addition of new XSCAPE locations since the prior year period. A $0.4 million one-time adjustment in the second quarter of 2015 also impacted the games revenues increase period over period.

Film cost

The following table highlights the movement in film cost and the film cost percentage for the quarter and the year to date (in thousands of Canadian dollars, except film cost percentage):

Film cost Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Film cost $ 91,567 $ 85,499 7.1% $ 273,893 $ 260,907 5.0%Film cost percentage (i) 53.1% 52.6% 0.5% 53.2% 52.2% 1.0%(i) See Section 18, Non-GAAP measures.

Third Quarter

Film cost varies primarily with box office revenues, and can vary from quarter to quarter based on the relative strength of the titles exhibited during the period. The increase in film cost was due to the higher attendance and the higher film cost percentage in the period compared to the prior year period. The increase in film cost percentage in the current period is primarily due to the settlement rate on the top films during the third quarter of 2015 being higher than the average film settlement rate in the 2014 period.

Year to Date

The year to date increase in film cost expense was due to the 1.0% increase in the film cost percentage and the 3.7% increase in attendance in the period. The increase in film cost percentage in the current year is as a result of the concentration of box office revenues from a few titles, with the top four films in the current period, which rank in the top ten grossing films of all-time, accounting for 22.4% of box office revenues (2014 - top four represented 16.5%).

Cost of food service

The following table highlights the movement in cost of food service and cost of food service as a percentage of food service revenues (“concession cost percentage”) for the quarter and the year to date (in thousands of Canadian dollars, except percentages and margins per patron):



Cost of food service Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Cost of food service $ 22,325 $ 19,848 12.5% $ 65,694 $ 59,876 9.7%Concession cost percentage (i) 21.2% 21.6% -0.4% 21.6% 21.6% —%Concession margin per patron (i) $ 4.28 $ 4.01 6.7% $ 4.22 $ 3.98 6.0%

(i) See Section 18, Non-GAAP measures

Third Quarter

Cost of food service varies primarily with theatre attendance as well as the quantity and mix of offerings sold. The increase in the cost of food service as compared to the prior year period was due to higher food service revenues, partially offset by the 0.4% decrease in the concession cost percentage during the period. The concession margin per patron increased from $4.01 in the third quarter of 2014 to $4.28 in the same period in 2015, reflecting the impact of higher CPP and lower concession cost percentage during the period.

Year to Date

The increase in the cost of food service as compared to the prior year period was due to the higher food service revenues. The concession margin per patron increased from $3.98 in the prior year period to $4.22 in the current period, reflecting the impact of the higher CPP in the current period.

Despite the 10% discount offered to SCENE members and SCENE points offered on select offerings, which contributes to a higher concession cost percentage, Cineplex believes the SCENE program drives incremental attendance and purchase incidence which increases food service revenues and CPP.

Depreciation and amortization

The following table highlights the movement in depreciation and amortization expenses during the quarter and year to date (in thousands of Canadian dollars):

Depreciation and amortization expenses Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Depreciation of property, equipment and leaseholds $ 20,225 $ 17,762 13.9% $ 59,098 $ 51,925 13.8%Amortization of intangible assets and other 1,886 1,903 -0.9% 5,715 5,603 2.0%Depreciation and amortization expenses as reported $ 22,111 $ 19,665 12.4% $ 64,813 $ 57,528 12.7%

The quarterly increase in depreciation of property, equipment and leaseholds of $2.5 million and year to date increase of $7.2 million is primarily due to the impact of equipment and leasehold improvements relating to assets acquired through acquisitions, new theatre construction and other growth projects.



Loss on disposal of assets

The following table shows the movement in the loss on disposal of assets during the quarter and year to date (in thousands of Canadian dollars):

Loss on disposal of assets Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Loss on disposal of assets $ 987 $ 834 18.3% $ 2,337 $ 2,767 -15.5%

During the third quarter of 2015, Cineplex recorded a loss of $1.0 million on the disposal of assets that were sold or otherwise disposed (2014 - $0.8 million). For the nine months ended September 30, 2015, disposal of assets resulted in a loss of $2.3 million on the disposal of assets that were sold or otherwise disposed of (2014 - $2.8 million, including a $0.6 million gain on the sale of land that was previously a drive-in theatre which is offset by losses on certain assets that were sold or otherwise disposed of).

Other costs

Other costs include three main sub-categories of expenses, including theatre occupancy expenses, which capture the rent and associated occupancy costs for Cineplex’s various operations; other operating expenses, which include the costs related to running Cineplex’s theatres and ancillary businesses; and general and administrative expenses, which includes costs related to managing Cineplex’s operations, including head office expenses. Please see the discussions below for more details on these categories. The following table highlights the movement in other costs for the quarter and year to date (in thousands of Canadian dollars):

Other costs Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Theatre occupancy expenses $ 51,239 $ 50,781 0.9% $ 152,821 $ 152,034 0.5%Other operating expenses 89,801 83,717 7.3% 259,952 251,465 3.4%General and administrative expenses 15,703 12,476 25.9% 50,238 42,898 17.1%Total other costs $ 156,743 $ 146,974 6.6% $ 463,011 $ 446,397 3.7%

Theatre occupancy expenses

The following table highlights the movement in theatre occupancy expenses for the quarter and year to date (in thousands of Canadian dollars):

Theatre occupancy expenses Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Rent $ 34,055 $ 33,474 1.7% $ 101,512 $ 100,758 0.7%Other occupancy 17,806 17,597 1.2% 53,928 53,234 1.3%One-time items (i) (622) (290) 114.5% (2,619) (1,958) 33.8%Total $ 51,239 $ 50,781 0.9% $ 152,821 $ 152,034 0.5%

(i) One-time items include amounts related to both theatre rent and other theatre occupancy costs. They are isolated here to illustrate Cineplex’s theatre rent and other theatre occupancy costs excluding these one-time, non-recurring items.



Theatre occupancy continuity Third Quarter Year to DateOccupancy Occupancy

2014 as reported $ 50,781 $ 152,034Impact of new and acquired theatres 643 2,199Impact of disposed theatres (287) (1,414)Same store rent change (i) 447 431One-time items (333) (661)Other (12) 2322015 as reported $ 51,239 $ 152,821(i) See Section 18, Non-GAAP measures

Third Quarter

Theatre occupancy expenses increased $0.5 million during the third quarter of 2015 compared to the prior year period. This increase was primarily due to higher same store rent expense ($0.4 million) and the impact of new and acquired theatres net of disposed theatres ($0.4 million), partially offset by the impact of one-time credits ($0.3 million).

Year to Date

The increase in theatre occupancy expenses of $0.8 million for the 2015 period compared to the prior year was due to the impact of new and acquired theatres net of disposed theatres and higher same store rent expenses, partially offset by the impact of one-time credits.

Other operating expenses

The following table highlights the movement in other operating expenses during the quarter and the year to date (in thousands of Canadian dollars):

Other operating expenses Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Theatre payroll $ 35,530 $ 31,458 12.9% $ 103,554 $ 96,938 6.8%Media 12,819 13,793 -7.1% 39,464 39,670 -0.5%Other 41,452 38,466 7.8% 116,934 114,857 1.8%Other operating expenses $ 89,801 $ 83,717 7.3% $ 259,952 $ 251,465 3.4%

Other operating continuity Third Quarter Year to DateOther Operating Other Operating

2014 as reported $ 83,717 $ 251,465Impact of new and acquired theatres 2,087 5,191Impact of disposed theatres (334) (538)Same store payroll change (i) 2,920 3,367Marketing change 1,504 1,513Media change (974) (206)New business initiatives change 162 (1,454)Other 719 6142015 as reported $ 89,801 $ 259,952(i) See Section 18, Non-GAAP measures



Third Quarter

Other operating expenses during the third quarter of 2015 increased $6.1 million or 7.3% compared to the prior year period. The major components of the increase were the net impact of new and acquired theatres net of disposed theatres ($1.8 million), higher marketing expenses ($1.5 million) due to expenses incurred supporting film product for which Cineplex has distribution rights as well as the timing of campaigns in the 2015 period compared to 2014, higher same store payroll due to higher business volumes and minimum wage increases in certain provinces ($2.9 million) and a $0.7 million increase in the Other category. These increases were partially offset by a $1.0 million decrease in media expenses due in part to the prior year period including more equipment sales for digital media, which have higher costs associated with fulfillment than advertising sales and digital media services.

Year to Date

For the nine months ended September 30, 2015, other operating expenses increased $8.5 million or 3.4% compared to the prior year period. The major components of this increase were the net impact of new and acquired theatres net of disposed theatres ($4.7 million), higher same store payroll costs of $3.4 million due to higher business volumes and minimum wage increases in certain provinces, and the higher marketing expenses ($1.5 million) discussed above. These increases were partially offset by lower spending on new business initiatives due in part to one-time digital platform development costs incurred in the prior year period ($1.5 million).

The $0.6 million increase in the Other category was primarily due to a $1.6 million increase in SCENE costs due to the growing membership base and support for the SportChek and CARA partnerships and a $0.7 million increase in same store utility costs. These increases were partially offset by lower 3D royalty expenses due to lower 3D attendance in the 2015 period compared to the prior year ($1.3 million) and lower ongoing theatre maintenance costs due to the timing of repairs in the 2015 and 2014 periods. General and administrative expenses

The following table highlights the movement in general and administrative (“G&A”) expenses during the quarter and the year to date, including Share based compensation costs, and G&A net of these costs (in thousands of Canadian dollars):

G&A expenses Third Quarter Year to Date2015 2014 Change 2015 2014 Change

G&A excluding LTIP and option plan expense $ 13,342 $ 11,962 11.5% $ 40,948 $ 39,214 4.4%LTIP (i) 1,931 69 NM 8,023 2,393 235.3%Option plan 430 445 -3.4% 1,267 1,291 -1.9%G&A expenses as reported $ 15,703 $ 12,476 25.9% $ 50,238 $ 42,898 17.1%(i) LTIP includes the expense for the LTIP program as well as the expense for the executive and Board deferred share unit plans.

Third Quarter

G&A expenses increased $3.2 million during the third quarter of 2015 compared to the prior year period due to higher LTIP expenses. This increase was due to the prior year period including an adjustment relating to the variance in performance results for the 2014 period. The $1.4 million increase in G&A excluding LTIP and option plan expense is due primarily to higher head office payroll and higher professional fees.



Year to Date

G&A expenses for the year to date period increased $7.3 million compared to the prior year period, due to a $5.6 million increase in LTIP expense as a result of the larger increase in the average closing Share price for the 90 days prior to September 30, 2015 as compared to the prior year period as well as the prior year period including an adjustment relating to the variance in performance results for the 2014 period. The $1.9 million increase in G&A excluding LTIP and option expense is due to higher head office payroll and higher professional fees.

Share of income of joint ventures

Cineplex’s joint ventures in the 2015 periods include its 78.2% interest in CDCP, 50% interest in CSI, 50% interest in one IMAX screen in Ontario and 50% interest in YoYo’s. For the 2014 periods, Cineplex’s joint ventures included the entities listed above as well as a 50% interest in one theatre in Quebec. Cineplex acquired the 50% interest in the theatre in Quebec that it did not already own on January 1, 2015. The following table highlights the components of share of income of joint ventures during the quarter and the year to date (in thousands of Canadian dollars):

Share of income of joint ventures Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Share of (income) of CDCP $ (428) $ (388) 10.3% $ (720) $ (1,008) -28.6%Share of (income) of CSI (834) (665) 25.4% (1,782) (1,136) 56.9%Share of loss (income) of other joint ventures 2 (10) NM (84) 48 NMTotal (income) of joint ventures $ (1,260) $ (1,063) 18.5% $ (2,586) $ (2,096) 23.4%

Subsequent to the period end, Cineplex acquired the 50% of CSI that it did not already own on October 1, 2015 (see Section 16, Subsequent event). Effective that date, Cineplex will cease to recognize its share of income of CSI and instead will consolidate the results of CSI.

Interest expense

The following table highlights the movement in interest expense during the quarter and year to date (in thousands of Canadian dollars):

Interest expense Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Long-term debt interest expense $ 2,447 $ 2,249 8.8% $ 6,983 $ 6,694 4.3%Convertible debenture interest expense 1,219 1,219 —% 3,618 3,618 —%Finance lease interest expense 295 341 -13.5% 920 1,054 -12.7%Sub-total - cash interest expense $ 3,961 $ 3,809 4.0% $ 11,521 $ 11,366 1.4%

Deferred financing fee accretion and other non-cash interest 1,403 1,230 14.1% 3,995 3,581 11.6%Convertible debenture accretion 493 460 7.2% 1,484 1,398 6.2%Interest rate swap - non-cash 62 (27) NM 149 (73) NMSub-total - non-cash interest expense 1,958 1,663 17.7% 5,628 4,906 14.7%Total interest expense $ 5,919 $ 5,472 8.2% $ 17,149 $ 16,272 5.4%

Interest expense increased $0.4 million for the quarter and increased $0.9 million for the year to date compared to the prior year period. For the third quarter and year to date periods, cash interest is higher than the prior year period due to higher average borrowings on Cineplex’s revolving facility. Non-cash interest in the quarter and year to date increased primarily due to the higher accretion of both the earn-out payment for the CDN acquisition and the convertible debentures.



Interest income

Interest income during the third quarter of 2015 and the nine months ended September 30, 2015 was as follows (in thousands of Canadian dollars):

Interest income Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Interest income $ 46 $ 172 -73.3% $ 134 $ 285 -53.0%

Income taxes

The following table highlights the movement in current and deferred income tax expense during the quarter and the year to date (in thousands of Canadian dollars):

Income taxes Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Current income tax expense $ 8,761 $ 1,007 770.0% $ 21,836 $ 2,387 814.8%Deferred income tax (recovery) expense $ (300) $ 5,012 NM $ 114 $ 14,562 -99.2%

The increase in current tax expense over the prior year periods is the result of the full utilization in 2014 of the losses acquired through Cineplex’s 2012 acquisition of AMC Ventures Inc. As a result of the $147 million of non-capital losses acquired in that transaction, Cineplex’s cash income taxes in 2014 were substantially reduced. None of those losses are available to reduce taxable income in 2015.

Cineplex’s blended federal and provincial statutory tax rate at September 30, 2015 was 26.5% (2014 - 26.3%).

Net income

For the three months ended September 30, 2015, Cineplex reported net income of $21.4 million (2014 – $15.9 million). For the nine months ended September 30, 2015, Cineplex reported net income of $57.4 million (2014 - $44.2 million) (in thousands of Canadian dollars):

Net income Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Net income $ 21,439 $ 15,914 34.7% $ 57,444 $ 44,190 30.0%

5.3 EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND AMORTIZATION (“EBITDA”) (see Section 18, Non-GAAP measures)

The following table presents EBITDA and adjusted EBITDA for the three and nine months ended September 30, 2015 as compared to the prior year periods (expressed in thousands of Canadian dollars, except adjusted EBITDA margin):

EBITDA Third Quarter Year to Date2015 2014 Change 2015 2014 Change

EBITDA $ 57,884 $ 46,898 23.4% $161,222 $134,654 19.7%Adjusted EBITDA $ 59,081 $ 48,042 23.0% $164,639 $138,353 19.0%Adjusted EBITDA margin 18.0% 16.1% 1.9% 17.1% 15.3% 1.8%

Adjusted EBITDA for the third quarter of 2015 increased $11.0 million, or 23.0%, as compared to the prior year period. The increase as compared to the prior year period was primarily due to higher attendance resulting in higher exhibition revenues, and higher contribution from Cineplex Media. Adjusted EBITDA margin, calculated as adjusted EBITDA divided by total revenues, was 18.0% in the current period, up from 16.1% in the prior year period.



Adjusted EBITDA for the nine months ended September 30, 2015 increased $26.3 million, or 19.0%, as compared to the prior year period, due to higher revenues in all major categories compared to the prior year period. Adjusted EBITDA margin for the period was 17.1%, an increase of 1.8% from 15.3% in the prior year period.



6. BALANCE SHEETS

The following sets out significant changes to Cineplex’s consolidated balance sheets during the nine months ended September 30, 2015 (in thousands of Canadian dollars):

September 30, 2015 December 31, 2014 Change ($) Change (%)AssetsCurrent assetsCash and cash equivalents $ 24,795 $ 34,367 $ (9,572) -27.9%Trade and other receivables 56,576 101,462 (44,886) -44.2%Inventories 8,086 7,978 108 1.4%Prepaid expenses and other current assets 12,697 8,102 4,595 56.7%

102,154 151,909 (49,755) -32.8%Non-current assetsProperty, equipment and leaseholds 507,348 495,532 11,816 2.4%Deferred income taxes 6,531 6,971 (440) -6.3%Interests in joint ventures 47,307 46,457 850 1.8%Intangible assets 123,247 109,746 13,501 12.3%Goodwill 801,335 798,801 2,534 0.3%

$ 1,587,922 $ 1,609,416 $ (21,494) -1.3%LiabilitiesCurrent liabilitiesAccounts payable and accrued expenses $ 105,631 $ 159,152 $ (53,521) -33.6%Share-based compensation 7,225 6,160 1,065 17.3%Dividends payable 8,201 7,877 324 4.1%Income taxes payable 16,835 9,735 7,100 72.9%Deferred revenue 107,103 149,644 (42,541) -28.4%Finance lease obligations 2,888 2,670 218 8.2%Fair value of interest rate swap agreements 1,372 692 680 98.3%

249,255 335,930 (86,675) -25.8%Non-current liabilitiesShare-based compensation 17,728 15,504 2,224 14.3%Long-term debt 308,194 229,754 78,440 34.1%Fair value of interest rate swap agreements 4,482 2,117 2,365 111.7%Finance lease obligations 12,811 15,008 (2,197) -14.6%Post-employment benefit obligations 7,154 6,977 177 2.5%Other liabilities 171,703 173,550 (1,847) -1.1%Convertible debentures 100,211 98,727 1,484 1.5%

871,538 877,567 (6,029) -0.7%

Equity attributable to owners of Cineplex 711,526 731,849 (20,323) -2.8%Non-controlling interests 4,858 — $ 4,858 NMTotal equity $ 716,384 $ 731,849 $ (15,465) -2.1%

$ 1,587,922 $ 1,609,416 $ (21,494) -1.3%

Trade and other receivables. The decrease in trade and other receivables is primarily due to the collection of receivables from the sales of gift cards, vouchers and media sales from the 2014 holiday period. December represents the highest volume month for gift card and voucher sales and is one of the strongest months for media sales during the year.

Prepaid expenses and other current assets. The increase in prepaid expenses and other current assets relates primarily to certain prepaid real estate tax installments which are paid during the first half of the year and expensed over the remainder of the year.

Property, equipment and leaseholds. The increase in property, equipment and leaseholds is due to new build and other capital expenditures ($50.0 million), maintenance capital expenditures ($21.6 million) and acquisitions ($1.9 million), offset by amortization expenses ($59.1 million) and asset dispositions ($2.6 million).



Intangible assets. The increase in intangible assets is primarily due to assets acquired as part of the WGN transaction, partially offset by amortization.

Goodwill. The increase in goodwill is due to the acquisition of the 50% of a theatre in Quebec that Cineplex did not already own during the first quarter of 2015 as well as the acquisition of an IMAX theatre in Quebec during the second quarter of 2015.

Accounts payable and accrued expenses. The decrease in accounts payable and accrued expenses primarily relates to the settlement of year-end liabilities.

Deferred revenue. Deferred revenue decreased primarily due to the redemption of gift cards and vouchers sold during the 2014 holiday season.

Share-based compensation. The increase in share-based compensation is due to the expense recognition of the LTIP and deferred share unit plan liabilities in the period.

Long-term debt. The increase in long-term debt primarily relates to borrowings under the Revolving Facility (defined and discussed in Section 7.4, Credit Facilities) and the deferred financing fee amortization recognized in the period.

Fair value of interest rate swap agreements. The increase in the fair value of interest rate swap agreements represents the fair value of the future settlements under the agreements.

Finance lease obligations. The decrease in finance lease obligations represents the payment of principal in the period.

Other liabilities. The decrease in other liabilities is primarily due to the amortization of lease-related liabilities, partially offset by the accretion of the deferred contingent consideration relating to CDN.

Convertible debentures. The increase in the convertible debenture liability is due to the accretion expense recognized in the period.

Non-controlling interests. The non-controlling interests represent the equity attributable to the 20% interest in the WGN partnership that is not owned by Cineplex.



7. LIQUIDITY AND CAPITAL RESOURCES

7.1 OPERATING ACTIVITIES

Cash flow is generated primarily from the sale of admission tickets, food service, media sales and services and other revenues. Generally, this provides Cineplex with positive working capital, since cash revenues are normally collected in advance of the payment of certain expenses. Box office revenues are directly related to the success and appeal of the film product produced and distributed by the studios. The following table highlights the movements in cash from operating activities for the three and nine months ended September 30, 2015 and 2014 (in thousands of Canadian dollars):

Cash flows provided by operating activities Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Net income $ 21,439 $ 15,914 $ 5,525 $ 57,444 $ 44,190 $ 13,254

Adjustments to reconcile net income to net cash provided byoperating activities:Non-cash amortization amounts (i) 21,567 19,126 2,441 62,858 56,461 6,397Loss on disposal of assets 987 834 153 2,337 2,767 (430)Deferred income taxes (300) 5,012 (5,312) 114 14,562 (14,448)Interest rate swap agreements - non-cash interest 62 (27) 89 149 (73) 222Non-cash Share-based compensation 429 445 (16) 1,266 1,291 (25)Accretion of convertible debentures 493 460 33 1,484 1,398 86Net change in interests in joint ventures 875 1,337 (462) (2,224) 97 (2,321)Tenant inducements — 555 (555) 757 3,397 (2,640)Changes in operating assets and liabilities (9,280) (20,746) 11,466 (49,937) (79,257) 29,320

Net cash provided by operating activities $ 36,272 $ 22,910 $ 13,362 $ 74,248 $ 44,833 $ 29,415

(i) Includes amortization of property, equipment and leaseholds and intangible assets, amortization of tenant inducements and rent averaging liabilities, and accretion of debt issuance and other non-cash interest costs.

Third Quarter

Cash provided by operating activities increased $13.4 million in the third quarter of 2015 compared to the prior year period due to stronger film product resulting in higher attendance, higher box office and higher food service revenues. The 7.2% increase in media revenues, as well as the timing of the settlement of liabilities, also contributed to the increase in operating cash flows in the period as compared to the prior year.

Year to Date

For the nine months ended September 30, 2015, cash provided by operating activities increased $29.4 million compared to the prior year period due to the $13.3 million increase in net income and the movement in operating assets and liabilities, including the timing of the settlement of liabilities.

7.2 INVESTING ACTIVITIES

The following table highlights the movements in cash used in investing activities for the three and nine months ended September 30, 2015 and 2014 (in thousands of Canadian dollars):



Cash flows used in investing activities Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Proceeds from sale of assets $ — $ 1 $ (1) $ 108 $ 405 $ (297)Purchases of property, equipment and leaseholds (25,560) (33,466) 7,906 (72,885) (84,161) 11,276Acquisition of businesses, net of cash acquired (12,472) — (12,472) (15,630) (2,466) (13,164)Intangible asset addition (355) — (355) (469) (2,750) 2,281Net cash received from joint ventures 407 140 267 1,163 909 254

Net cash used in investing activities $ (37,980) $ (33,325) $ (4,655) $ (87,713) $ (88,063) $ 350

Third Quarter

Cash used in investing activities during the third quarter of 2015 was $4.7 million higher than the prior year period due to the net $12.5 million spent to acquire WGN, partially offset by $7.9 million lower purchases of property, equipment and leaseholds. The decrease in purchases of property, equipment and leaseholds was due to less spending on digital media projects, as the prior year period included the roll-outs of the TimsTV and Oxford digital place-based ecosystems.

Year to Date

For the year to date period, cash used in investing activities was in line with the prior year period. The current period had higher spending on acquisitions, primarily the WGN acquisition in the third quarter, offset by lower spending on property, equipment and leaseholds and intangible asset acquisitions. The property, equipment and leasehold decrease was due to lower digital media project installations as well as lower theatre construction spending in the current period as compared to the prior year.

Components of capital expenditures include (in thousands of Canadian dollars):

Capital expenditures Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Gross capital expenditures $ 25,560 $ 33,466 $ (7,906) $ 72,885 $ 84,161 $ (11,276)Less: tenant inducements — (555) 555 (757) (3,397) 2,640Net capital expenditures $ 25,560 $ 32,911 $ (7,351) $ 72,128 $ 80,764 $ (8,636)

Net capital expenditures consists of:Growth and acquisition capital expenditures (i) $ 10,883 $ 11,762 $ (879) $ 29,713 $ 46,717 $ (17,004)Tenant inducements — (555) 555 (757) (3,397) 2,640Media growth capital expenditures 3,267 13,944 (10,677) 11,116 16,554 (5,438)Premium formats (ii) 1,177 790 387 7,739 7,273 466Maintenance capital expenditures 8,763 5,797 2,966 21,566 17,760 3,806Other (iii) 1,470 1,173 297 2,751 (4,143) 6,894

$ 25,560 $ 32,911 $ (7,351) $ 72,128 $ 80,764 $ (8,636)(i) Growth and acquisition capital expenditures include expenditures on the construction of new theatre buildings (including VIPauditoriums) and other Board approved growth projects with the exception of premium formats (discussed below) and media growthcapital expenditures.(ii) Premium formats include capital expenditures for IMAX, UltraAVX and 3D.(iii) Primary component of Other is the impact of the timing of cash payments relating to the purchases of property, equipment and leaseholds.

Cineplex funds maintenance capital expenditures through internally generated cash flow and cash on hand. Cineplex’s Revolving Facility (defined and discussed in Section 7.4, Credit Facilities) is available to fund new theatre capital expenditures.



7.3 FINANCING ACTIVITIES

The following table highlights the movements in cash from financing activities for the three and nine months ended September 30, 2015 and 2014 (in thousands of Canadian dollars):

Cash flows (used in) provided by financing activities Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Dividends paid $ (24,603) $ (23,620) $ (983) $ (72,204) $ (69,260) $ (2,944)Borrowings under credit facility, net 28,000 29,000 (1,000) 78,000 79,000 (1,000)Payments under finance leases (671) (592) (79) (1,980) (1,778) (202)

Net cash provided by financing activities $ 2,726 $ 4,788 $ (2,062) $ 3,816 $ 7,962 $ (4,146)

Third Quarter

Net cash provided by financing activities in the third quarter of 2015 decreased $2.1 million compared to the prior year period due to $1.0 million less borrowings and an additional $1.0 million in dividend payments made in the period, compared to the prior year period.

Year to Date

Net cash provided by financing activities in the year to date period in 2015 decreased $4.1 million compared to the prior year period due to $2.9 million in additional dividend payments and $1.0 million of lower borrowings.

Cineplex believes that it will be able to meet its future cash obligations with its cash and cash equivalents, cash flows from operations and funds available under the Credit Facilities as described in Section 7.4, Credit Facilities.

7.4 CREDIT FACILITIES

Cineplex and the Partnership entered into certain credit facilities effective October 24, 2013 (the “Credit Facilities”). At September 30, 2015, the Credit Facilities consisted of the following (in millions of Canadian dollars):

Available Drawn Reserved Remaining(i) a five-year senior secured revolving credit facility (“Revolving Facility”) $ 250.0 $ 160.0 $ 5.4 $ 84.6(ii) a five-year senior secured non-revolving term facility (“Term Facility”) $ 150.0 $ 150.0 $ — $ —

Letters of credit outstanding at June 30, 2015 of $5.4 million are reserved against the Revolving Facility.

There are provisions to increase the Revolving Facility commitment amount by an additional $150.0 million with the consent of the lenders.

The Credit Facilities bear interest at a floating rate based on the Canadian dollar prime rate, or bankers’ acceptances rates plus, in each case, an applicable margin to those rates. The facilities mature in October 2018 and are payable in full at maturity, with no scheduled repayment of principal required prior to maturity.

Cineplex’s Credit Facilities contain restrictive covenants that limit the discretion of Cineplex’s management with respect to certain business matters. These covenants place restrictions on, among other things, the ability of Cineplex to create liens or other encumbrances, to pay dividends or make certain other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. The Credit Facilities are secured by all of Cineplex’s assets.



One of the key financial covenants in the Credit Facilities is the leverage covenant. As at September 30, 2015, Cineplex’s leverage ratio as calculated in accordance with the Credit Facilities definition was 1.47x, as compared to a covenant of 3.50x. The definition of debt in the Credit Facility includes long-term debt (excluding any convertible debentures), financing leases and letters of credit but does not include a reduction for cash on hand. For the purposes of the Credit Facility definition, EBITDA is adjusted for certain non-cash, non-recurring items and the annualized impact of new theatres or acquisitions.

Cineplex believes that the Credit Facilities, and ongoing cash flow from operations, will be sufficient to allow it to meet ongoing requirements for capital expenditures, investments in working capital and dividend payments. However, Cineplex's needs may change and in such event Cineplex's ability to satisfy its obligations will be dependent upon future financial performance, which in turn will be subject to financial, tax, business and other factors, including elements beyond Cineplex's control.

Interest rate swap agreements. Effective August 24, 2011, Cineplex entered into three interest rate swap agreements. Under these agreements, Cineplex pays a fixed rate of 1.715% per annum, plus an applicable margin, and receives a floating rate of interest equal to the three-month Canadian deposit offering rate set quarterly in advance, with gross settlements quarterly. These interest rate swap agreements have a term of five years that commenced in August 2011 and have an aggregate notional principal amount of $150.0 million. Based on the leverage ratio covenant at September 30, 2015, Cineplex’s effective cost of borrowing on the $150.0 million Term Facility was 3.115% (September 30, 2014 - 3.265%).

During the first quarter of 2014, Cineplex entered into three new interest rate swap agreements which commence at the maturity of the existing interest rate swap agreements for an aggregate notional principal amount of $150.0 million, and mature on October 24, 2018, the same date as the maturity of the Credit Facilities. Under these new agreements, Cineplex pays a fixed rate of 2.62% per annum, plus an applicable margin, and receives a floating rate of interest equal to the three-month Canadian deposit offering rate set quarterly in advance, with gross settlements quarterly.

The purpose of the interest rate swap agreements is to act as a cash flow hedge of the floating interest rate payable under the Term Facility. Cineplex considered its hedging relationships and determined that the interest rate swap agreements on its Term Facility qualify for hedge accounting in accordance with IAS 39, Financial Instruments: Recognition and Measurement. Under the provisions of IAS 39, the interest rate swap agreements are recorded on the balance sheet at their fair values, with subsequent changes in fair value recorded in either net income or other comprehensive income.

7.5 FUTURE OBLIGATIONS

Cineplex has aggregate gross capital commitments of $76.0 million ($61.4 million net of tenant inducements) related to the completion of construction of eight theatre properties to include an aggregate of 78 screens (including 28 VIP auditoriums) over the next three years. In addition, Cineplex has gross commitments over the next two years of $20.7 million for other projects, including the conversion of regular auditoriums to VIP at certain theatres, certain digital media projects both in the theatre and for clients of CDS and CDN, and the first two of The Rec Room locations. The first The Rec Room is scheduled to open in the second quarter of 2016 at South Edmonton Common in Edmonton, Alberta in an approximately 60,000 square foot location in proximity to Cineplex’s existing theatre at that location. The second location is scheduled to open in the fourth quarter of 2016 at Deerfoot City in Calgary, Alberta in an approximately 50,000 square foot location.



At September 30, 2015, Cineplex had a commitment to acquire 50% of the issued and outstanding equity of CSI that it does not already own, for a minimum of $17.5 million in cash. This transaction closed subsequent to the period end on October 1, 2015 (see Section 16, Subsequent event). Cineplex now owns 100% of the issued and outstanding equity of CSI.

Cineplex’s acquisition of CDN during the third quarter of 2013 included an earn-out payment subject to an aggregate maximum purchase price of $78.0 million for both the initial payment and the earn-out payment. The earn-out payment will be based on normalized 2015 operating results (as defined in the purchase agreement) and will be paid in early 2016. At September 30, 2015, the deferred contingent consideration is recognized in Cineplex’s balance sheet at an estimated fair value of $37.9 million, with an undiscounted value of $39.6 million. The deferred contingent consideration is being accreted using the effective interest method as prescribed by IAS 39, Financial Instruments: Recognition and Measurement.

At September 30, 2015, Cineplex had $107.5 million principal amount of convertible debentures outstanding that have a maturity date of December 31, 2018. At September 30, 2015, the convertible debentures were recorded on Cineplex’s balance sheet at $100.2 million. The convertible debentures are being accreted to their maturity value using the effective interest method as prescribed by IAS 39, Financial Instruments: Recognition and Measurement. On and after December 31, 2016 and prior to December 31, 2017, Cineplex may, at its option, redeem the debentures in whole or in part from time to time, subject to specified market conditions. On or after December 31, 2017, the convertible debentures may be redeemed in whole or in part from time to time at the option of Cineplex at a price equal to their principal amount plus accrued and unpaid interest. Redemptions may be in cash or in the form of Shares, at the option of Cineplex. See Section 9, Share activity, for more information regarding the convertible debentures.

Cineplex conducts a significant part of its operations in leased premises. Cineplex’s leases generally provide for minimum rent and a number of the leases also include percentage rent based primarily upon sales volume. Cineplex’s leases may also include escalation clauses, guarantees and certain other restrictions, and generally require it to pay a portion of the real estate taxes and other property operating expenses. Initial lease terms generally range from 15 to 20 years and contain various renewal options, generally in intervals of five to ten years.

Cineplex is a guarantor under the leases for the remainder of the lease term for certain theatres that it has sold, in the event that the purchaser of each theatre does not fulfill its obligations under the respective lease. Should the purchasers of the theatres fail to fulfill their lease commitment obligations, Cineplex could face a substantial financial burden. Cineplex guarantees certain advertising revenues based on attendance levels for a majority of the theatres disposed to third parties. No amounts have been provided in the consolidated financial statements for guarantees for which Cineplex has not been notified of triggering events.

8. ADJUSTED FREE CASH FLOW AND DIVIDENDS (see Section 18, Non-GAAP measures)

Cineplex’s dividend policy is subject to the discretion of the Board and may vary depending on, among other things, Cineplex’s results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other factors that the Board may deem relevant. It is anticipated that Cineplex will pay a monthly dividend, subject to the discretion of the Board, at an annualized rate in the range between 60% and 85% of adjusted free cash flow per Share. Cineplex currently designates all dividends paid or deemed to be paid as “eligible dividends” for purposes of subsection 89(14) of the Income Tax Act (Canada), and similar provincial and territorial legislation, unless indicated otherwise.



8.1 ADJUSTED FREE CASH FLOW

Cineplex distributes cash to its shareholders on a monthly basis. The following table illustrates adjusted free cash flow per Share, dividends paid per Share, and the payout ratio of dividends relative to adjusted free cash flow for the three months ended September 30, 2015 and 2014:

Adjusted free cash flow Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Adjusted free cash flow per Share $ 0.568 $ 0.570 -0.4% $ 1.655 $ 1.635 1.2%Dividends declared per Share $ 0.390 $ 0.375 4.0% $ 1.150 $ 1.105 4.1%Payout ratio - twelve months ended September 30 65.5% 66.2% -0.7%

Adjusted free cash flow per Share and the payout ratios for the 2014 periods were positively impacted by Cineplex’s use of loss carryforwards acquired through Cineplex’s acquisition of AMC Ventures Inc. in 2012, resulting in Cineplex’s cash income taxes in 2014 being substantially reduced.

Adjusted free cash flow per Share in the third quarter of 2015 is 0.4% lower than the prior period as the impact of the use of the loss carryforwards in 2014 more than offset the impact of the stronger operating results in the current period. For the year to date period, adjusted free cash flow per Share is 1.2% higher than the prior year period due to the impact of the stronger business results in the current period being greater than the impact of the loss carryforwards used in the 2014 period.

Measures relevant to the discussion of adjusted free cash flow per Share are as follows (expressed in thousands of Canadian dollars except Shares outstanding):

Third Quarter Year to Date2015 2014 Change 2015 2014 Change

Cash flows provided by operations $ 36,272 $ 22,910 58.3% $ 74,248 $ 44,833 65.6%Net income $ 21,439 $ 15,914 34.7% $ 57,444 $ 44,190 30.0%Standardized free cash flow $ 10,712 $ (10,555 ) NM $ 1,471 $ (38,923 ) NMAdjusted free cash flow $ 35,860 $ 35,883 -0.1% $ 104,349 $ 102,966 1.3%Cash dividends declared $ 24,604 $ 23,621 4.2% $ 72,529 $ 69,582 4.2%Average number of Shares outstanding 63,086,232 62,987,992 0.2% 63,064,784 62,965,606 0.2%



8.2 DIVIDENDS Subject to the discretion of the Board, dividends are typically declared on a monthly basis to common shareholders of record on the last business day of each month. For the three months ended September 30, 2015, Cineplex declared dividends totaling $0.390 per Share. For the three months ended September 30, 2014, Cineplex declared dividends totaling $0.375 per Share. The following table outlines the Fund’s and Cineplex’s distribution and dividend history:

Distribution and dividend history

Effective Date Monthly Distribution/Dividend per Unit/ShareJanuary 2004 (i) $0.0958May 2007 $0.1000May 2008 (ii) $0.1050May 2011 $0.1075May 2012 $0.1125May 2013 $0.1200May 2014 $0.1250May 2015 $0.1300(i) For the 36 day period from November 26, 2003 (the inception of the Fund) to December 31, 2003, the Fund declared a distribution of $0.1118.(ii) The Fund declared and paid distributions at a rate of $0.1050 per month from May 2008 until December 2010. The Fund converted to a corporation on January 1, 2011, at which time distributions ceased and dividends began at the same rate of $0.1050 per month.

9. SHARE ACTIVITY

Share capital at September 30, 2015 and the transactions during the period are as follows (expressed in thousands of Canadian dollars except Share amounts):

2015

AmountCommon

shares issuedand

outstandingCommon

shares

Equitycomponent

of convertible debentures Total

Balance - December 31, 2014 63,015,023 $ 849,602 $ 4,471 $ 854,073Issuance of shares on exercise of options 71,726 522 — 522Balance - September 30, 2015 63,086,749 $ 850,124 $ 4,471 $ 854,595

Officers and key employees are eligible to participate in the LTIP. For the three-year service period beginning January 1, 2011, the LTIP awards consist of a “phantom” stock plan awarding base Share equivalents which may decrease by approximately 67% or increase by 100% subject to certain performance and market conditions. The base Share equivalents attract compounding notional dividends at the same rate as outstanding Shares, which are notionally re-invested as additional base Share equivalents. The awards will be settled in cash at the end of the service period, within 30 days of the approval of the annual consolidated financial statements by the Board. The initial grants of Share equivalents were as follows:

Base Share equivalents

2015 LTIP award 114,335

2014 LTIP award 135,602

2013 LTIP award 124,936

LTIP costs are estimated at the grant date based on expected performance results, and recognized on a graded basis over the vesting period. The effects of changes in estimates of performance results are recognized in the period of change. Forfeitures are estimated at nil.



Cineplex has an incentive Share option plan for certain employees. The aggregate number of Shares that may be issued under the option plan is limited to 5,250,000 Shares. All of the outstanding options must be exercised over specified periods not to exceed 10 years from the date granted. As of September 30, 2015, 2.1 million Share options are outstanding under the Share option plan. Upon cashless exercise, the Share options exercised in excess of Shares issued are canceled and returned to the pool available for future grants. At September 30, 2015, 2.6 million Share options are available for grant under the plan.

A summary of option activities for the nine months ended September 30, 2015 and 2014 is as follows:

2015 2014

Weightedaverage

remainingcontractuallife (years)

Number ofunderlying

Shares

Weightedaverageexercise

price

Number ofunderlying

Shares


priceOptions outstanding - January 1 7.65 1,776,173 $ 31.37 1,459,772 $ 27.23Granted 446,004 49.14 540,519 40.45Cancelled — — (10,694) 34.89Exercised (167,157) 28.24 (153,836) 25.96Options outstanding – end of period 7.48 2,055,020 $ 35.48 1,835,761 $ 31.18

During the fourth quarter of 2013, Cineplex issued $107.5 million principal amount of convertible unsecured subordinated debentures, maturing on December 31, 2018 (the “Maturity Date”) and bearing interest at a rate of 4.5% per annum, payable semi-annually in arrears on June 30 and December 31 in each year, commencing on December 31, 2013. At the holder’s option, the debentures may be converted into Shares at a conversion price of $56 per Share at any time prior to the close of business five days before the earlier of the Maturity Date, the date fixed for redemption by Cineplex, or if called for repurchase in the event of a change in control, the payment date. The debentures are not redeemable by Cineplex prior to December 31, 2016.

On and after December 31, 2016 and prior to December 31, 2017, Cineplex may, at its option, redeem the convertible debentures in whole or in part from time to time, subject to the market price of the Shares. On or after December 31, 2017, the convertible debentures may be redeemed in whole or in part from time to time at the option of Cineplex at a price equal to their principal amount plus accrued and unpaid interest. Redemptions may be in cash or in the form of Shares, at the option of Cineplex.



10. SEASONALITY AND QUARTERLY RESULTS

Historically, Cineplex’s revenues have been seasonal, coinciding with the timing of major film releases by the major distributors. The most marketable motion pictures have traditionally been released during the summer and the late-November through December holiday season. This may cause changes, from quarter to quarter, in attendance levels, theatre staffing levels and reported results. The seasonality of motion picture exhibition attendance has become less pronounced as film studios have expanded the historical summer and holiday release windows and increased the number of heavily marketed films released during traditionally weaker periods. To meet working capital requirements during the traditionally lower-revenue quarters, Cineplex can draw upon the Revolving Facility. As of September 30, 2015, there was $160.0 million drawn on the Revolving Facility, with $84.6 million undrawn and available for use.

Summary of Quarterly Results (expressed in thousands of Canadian dollars except per Share, per patron, attendance and theatre location and screen data, unless otherwise noted):

2015 2014 2013Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4

RevenuesBox office $ 172,571 $ 186,202 $ 156,041 $ 172,460 $ 162,574 $ 181,419 $ 156,225 $ 177,692Food service 105,464 108,397 90,785 97,778 92,094 98,024 87,143 93,294Media 34,296 35,020 29,072 46,852 31,992 30,990 24,355 39,196Other 15,915 15,921 13,887 15,121 12,330 13,063 12,296 13,025

328,246 345,540 289,785 332,211 298,990 323,496 280,019 323,207ExpensesFilm cost 91,567 102,155 80,171 88,657 85,499 94,950 80,458 91,867Cost of food service 22,325 23,921 19,448 21,579 19,848 21,147 18,881 19,835Depreciation and amortization 22,111 21,802 20,900 19,922 19,665 19,195 18,668 19,748Loss (gain) on disposal of assets 987 1,033 317 626 834 1,989 (56) 432Other costs 156,743 155,334 150,934 160,280 146,974 148,977 150,446 158,025

293,733 304,245 271,770 291,064 272,820 286,258 268,397 289,907

Income from operations 34,513 41,295 18,015 41,147 26,170 37,238 11,622 33,300

Adjusted EBITDA (i) 59,081 65,310 40,248 62,649 48,042 59,430 30,881 54,144

Net income $ 21,439 $ 25,478 $ 10,527 $ 32,081 $ 15,914 $ 23,205 $ 5,071 $ 20,168

Basic earnings per Share $ 0.34 $ 0.40 $ 0.17 $ 0.51 $ 0.25 $ 0.37 $ 0.08 $ 0.32Diluted earnings per Share (ii) $ 0.34 $ 0.40 $ 0.17 $ 0.51 $ 0.25 $ 0.37 $ 0.08 $ 0.32

Cash provided by (used in) operatingactivities $ 36,272 $ 54,434 $ (16,458) $ 135,425 $ 22,910 $ 40,440 $ (18,517) $ 134,455Cash used in investing activities (37,980) (22,751) (26,982) (18,649) (33,325) (22,722) (32,016) (204,563)Cash provided by (used in) financingactivities 2,726 (24,625) 25,715 (91,281) 4,788 (13,578) 16,752 102,087Effect of exchange rate differences oncash 77 — — — — — — —Net change in cash $ 1,095 $ 7,058 $ (17,725) $ 25,495 $ (5,627) $ 4,140 $ (33,781) $ 31,979BPP (i) $ 8.89 $ 9.45 $ 8.90 $ 9.06 $ 9.01 $ 9.40 $ 9.04 $ 9.42CPP (i) $ 5.43 $ 5.50 $ 5.18 $ 5.14 $ 5.11 $ 5.08 $ 5.05 $ 4.94Attendance (in thousands of patrons) (i) 19,407 19,695 17,538 19,037 18,038 19,301 17,272 18,872Theatre locations (at period end) 162 162 161 161 161 162 161 161Theatre screens (at period end) 1,652 1,652 1,648 1,639 1,639 1,638 1,632 1,630

(i) See Section 18, Non-GAAP measures.(ii) Excludes the conversion of convertible debentures as such conversion would be anti-dilutive.



Summary of adjusted free cash flow by quarter

Management calculates adjusted free cash flow per Share as follows (see Section 18, Non-GAAP measures, for a discussion of adjusted free cash flow) (expressed in thousands of Canadian dollars except per Share data and number of Shares outstanding):

2015 2014 2013Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4

Cash provided by (used in) operatingactivities $ 36,272 $ 54,434 $ (16,458) $ 135,425 $ 22,910 $ 40,440 $ (18,517) $ 134,455Less: Total capital expenditures net ofproceeds on sale of assets (25,560) (20,406) (26,811) (18,107) (33,465) (19,225) (31,066) (14,394)

Standardized free cash flow 10,712 34,028 (43,269) 117,318 (10,555) 21,215 (49,583) 120,061

Add/(Less):Changes in operating assets andliabilities 9,280 (7,920) 48,577 (87,666) 20,746 12,106 46,405 (85,812)Changes in operating assets andliabilities of joint ventures (2,135) 1,439 334 1,941 (2,400) (118) 325 (549)Tenant inducements — — (757) (818) (555) — (2,842) (500)Principal component of financing leaseobligations (671) (659) (650) (660) (592) (595) (591) (615)Growth capital expenditures and other 16,797 12,615 21,799 10,893 27,668 14,281 24,047 2,561Share of income of joint ventures, net ofnon-cash depreciation 1,436 1,180 1,016 985 1,431 1,041 623 593Non-controlling interest EBITDA ofWGN 34 — — — — — — —Net cash received from CDCP 407 329 427 547 140 769 — 535

Adjusted free cash flow $ 35,860 $ 41,012 $ 27,477 $ 42,540 $ 35,883 $ 48,699 $ 18,384 $ 36,274

Average number of Shares outstanding 63,086,232 63,073,248 63,034,270 62,995,236 62,987,992 62,966,909 62,941,405 62,875,151

Adjusted free cash flow per Share $ 0.568 $ 0.650 $ 0.436 $ 0.675 $ 0.570 $ 0.773 $ 0.292 $ 0.577

11. RELATED PARTY TRANSACTIONS

Cineplex may be party to transactions in the normal course of business with entities whose management, directors or trustees are also directors of Cineplex. Any such transactions are in the normal course of operations and are measured at market based exchange amounts. Unless otherwise noted, these transactions are not considered related party transactions for financial statement purposes.

A member of the Board is the Chief Executive Officer of Riocan Real Estate Investment Trust (“Riocan”). During the three and nine months ended September 30, 2015, Cineplex incurred theatre occupancy expenses for theatres under lease commitments with Riocan in the amounts of $11.1 million and $33.8 million, respectively (2014 - $11.3 million and $33.2 million, respectively).

12. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATION UNCERTAINTIES

Cineplex makes estimates and assumptions concerning the future that may not equal actual results. These estimates and assumptions are outlined in Section 12 of Cineplex’s annual MD&A. These estimates and assumptions have not changed materially since December 31, 2014.



13. ACCOUNTING POLICIES

FUTURE CHANGES IN ACCOUNTING POLICIES

Management of Cineplex reviews all changes to the IFRS when issued. The International Accounting Standards Board (“IASB”) has issued the following standards, which have not yet been adopted by Cineplex. The following is a description of the new standards:

IFRS 9, Financial Instruments

IFRS 9, Financial Instruments (“IFRS 9”) was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”) for debt instruments, with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income (“OCI”). Where equity instruments are measured at fair value through OCI, dividends are recognized in profit or loss to the extent not clearly representing a return on investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated other comprehensive income indefinitely.

Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk in liabilities designed at fair value through profit and loss would generally be recorded in OCI or OCL.

IFRS 9 was amended in November 2013 to: (i) include guidance on hedge accounting; (ii) allow entities to early adopt the requirement to recognize changes in fair value attributable to changes in an entity’s own credit risk, from financial liabilities designated under the fair value option, in OCI (without having to adopt the remainder of IFRS 9); and (iii) remove the previous mandatory effective date of January 1, 2015, although the standard is available for early adoption. Cineplex has not yet assessed the impact of this standard and amendments or determined whether it will early adopt them.

IFRS 15, Revenue from Contracts with Customers

On May 28, 2014, the IASB issued the final revenue standard, IFRS 15 Revenue from Contracts with Customers, which will replace IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue - Barter Transactions Involving Advertising Services. The new standard will be mandatorily effective for fiscal years beginning on or after January 1, 2018, and interim periods within that year. Earlier application is permitted. Cineplex is analyzing the new standard to determine its impact on Cineplex’s balance sheet and statement of operations.

IAS 1, Presentation of Financial Statements

IAS 1, Presentation of Financial Statements, was amended in December 2014 to clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The Amendment is effective for years beginning on or after January 1, 2016. Cineplex is analyzing the new standard to determine its impact on Cineplex’s balance sheet and statements of operations.



14. RISK MANAGEMENT

Cineplex is exposed to a number of risks in the normal course of business that have the potential to affect operating performance. Cineplex has operating and risk management strategies and insurance programs to help minimize these operating risks. In addition, Cineplex has entity level controls and governance procedures including a corporate code of business conduct and ethics, whistle blowing procedures, clearly articulated corporate values and detailed policies outlining the delegation of authority within Cineplex.

Cineplex conducts an annual enterprise risk management assessment which is overseen by Cineplex’s executive management team and the audit committee of the Board, and is reported to the full Board. The enterprise risk management framework sets out principles and tools for identifying, evaluating, prioritizing and managing risk effectively and consistently across Cineplex. In addition Cineplex monitors risks and changing economic conditions on an ongoing basis and adapts its operating strategies as required.

Industry Risk

Cineplex’s ability to operate successfully depends upon the availability, diversity and appeal of films, the availability, diversity and appeal of 3D product, the ability of Cineplex to license films and the performance of these films in Cineplex’s markets. Cineplex primarily licenses first-run films, the success of which is dependent upon their quality, as well as on the marketing efforts of film studios and distributors. Cineplex continues to diversify its entertainment offerings to include alternative programming and to move into other sources of revenue such as digital commerce and expanded media offerings. Nonetheless, Cineplex is highly dependent on film product and film performance, including the number and success of blockbuster films. A reduction in quality or quantity of both 2D and 3D film product or any disruption in the production or release of films, including a strike or threat of a strike, a reduction in the marketing efforts of film studios and distributors or a significant change in film release patterns, would have a negative effect on film attendance and adversely affect Cineplex’s business and results of operations.

In 2014, seven major film distributors accounted for approximately 93% of Cineplex’s box office revenues, which is consistent with industry standards. Deterioration in Cineplex’s relationships with any of the major film distributors could affect its ability to negotiate film licenses on favourable terms or its ability to obtain commercially successful films. Cineplex actively works on maintaining good relations with these distributors, as this affects its ability to negotiate commercially favourable licensing terms for first-run films or to obtain licenses at all.

Cineplex competes with other consumption platforms, including cable, satellite television, DVDs and Blu-rays, as well as DTO, VoD, subscription video on demand and other over the top operators via the Internet. The release date of a film in other channels of distribution such as over the top internet streaming, pay television or DVD is at the discretion of each distributor and day and date release or earlier release windows for these or new alternative channels could have a negative impact on Cineplex’s business.

Exhibition Competition Risk

Cineplex competes in each of its local markets with other national and regional circuits and independent film exhibitors, particularly with respect to film licensing, attracting guests and acquiring and developing new theatre sites and acquiring existing theatres. Movie-goers are generally not brand conscious and usually choose a theatre based on its location, the films showing, showtimes available and the theatre’s amenities. As a result, the building of new theatres, renovation of older theatres or the addition of screens to existing theatres by competitors in areas in which Cineplex operates theatres may result in reduced attendance levels at Cineplex’s theatres.

In response to this risk, management fosters strong ties with the real estate and development community and monitors potential development sites closely. Most prime locations in larger markets have been developed such that further development would be generally uneconomical. In addition, the exhibition industry is capital



intensive with high operating costs and long-term contractual commitments. Significant construction and real estate costs make it increasingly difficult to develop new sites profitably.

Media Risk

Media revenue has been shown to be particularly sensitive to economic conditions and any changes in the economy may either adversely influence this revenue stream in times of a downturn or positively influence this revenue stream should economic conditions improve. Cineplex has numerous large media customers, the loss of which could impact Cineplex’s results. There is no guarantee that Cineplex could replace the revenues generated by these large customers if their business was lost.

Technology Risk

Technological advances and the conversion of films into digital formats have made it easier to create, transmit and “share” via downloading over the Internet or unauthorized copying, high quality copies of films in theatrical release. Some consumers may choose to obtain unauthorized copies of films rather than attending the theatre which may have an adverse effect on Cineplex’s business. In addition, as home theatre technology becomes more sophisticated and additional technologies become available to consume content, consumers may choose other technology options rather than attending a theatre.

To mitigate these risks, Cineplex continues to enhance the out of home experience through the addition of new technologies and experiences including 3D, VIP, UltraAVX and digital projection in order to further differentiate the theatrical product from the home product. Approximately 47% of Cineplex’s auditoriums are currently equipped to screen 3D content. Cineplex has also diversified its offerings to customers by operating the Cineplex Store which sells DVDs, Blu-ray discs, as well as VoD and DTO movies online in order to participate in the in-home and on-the-go entertainment markets.

Changing platform technologies and new emerging technologies in the digital commerce industry present a risk to the Cineplex Store as well as WGN’s operations. Should the Cineplex Store’s supplier cease operations or have its technology platform rendered obsolete, Cineplex’s sales of VoD and DTO products could be jeopardized.

Customer Risk

Cineplex competes for customers leisure time and disposable income with other forms of entertainment including home and online consumption of content, sporting events, live music concerts, live theatre and restaurants. Cineplex aims to deliver an affordable out of home entertainment experience. Cineplex monitors pricing in all markets to ensure that it offers a reasonably priced out of home experience compared to other entertainment alternatives. If Cineplex is too aggressive in raising ticket prices or concession prices, there may be an adverse effect on attendance and food service revenues. In addition, historical data shows that movie attendance has not been negatively affected by economic downturns over the past 25 years.

Cineplex monitors customer needs to ensure that the in-theatre experience meets the anticipated needs of key demographic groups. Cineplex is differentiating the movie-going experience by providing UltraAVX auditoriums, D-Box seating, VIP Cinemas and XSCAPE Entertainment Centres in select theatres and by providing alternative programming which appeals to specific demographic groups. In addition, the advent of digital technology has allowed for more niche programming. In the event that consumer preferences change, Cineplex may need to incur further capital expenditures to redevelop existing locations. In consideration of this risk, Cineplex continues to improve the quality of its theatre assets through ongoing theatre upgrades and retrofits.

Cineplex is dependent on its theatre locations to provide a satisfactory entertainment experience. If Cineplex’s execution of processes does not consistently meet or exceed customer expectations due to poor customer service or poor quality of assets, movie attendance may be adversely affected. Cineplex monitors customer satisfaction through surveys, mystery shops and focus groups, and maintains a guest services department to



address customer concerns. Guest satisfaction is tied to performance measures for theatre management ensuring alignment between corporate and operational objectives. There is the potential for misinformation to be spread virally through social media relating to Cineplex’s theatre assets as well as the quality of its customer service. Cineplex monitors commentary on social media in order to respond quickly to potential social media misinformation.

Cineplex continues to pursue other revenue opportunities such as in-theatre and out of home advertising, gaming, promotions and alternative uses of its theatres during non-peak hours. Gaming includes in-theatre gaming locations, XSCAPE Entertainment Centres, CSI and WGN. In 2015, Cineplex announced its plans for its social entertainment destination The Rec Room. Cineplex’s ability to achieve its business objectives may depend in part on its ability to successfully increase these revenue streams.

Cineplex’s offerings through the Cineplex Store of DVD’s and Blu-ray discs relies on third party shipping to deliver the hard goods purchased by the consumer. The VoD and DTO movies are delivered online via third parties. Delays in shipping hard goods or delays or other technological issues relating to online delivery could negatively impact customer satisfaction. Cineplex monitors delivery times for both hard goods and electronic delivery in order to proactively manage any potential customer satisfaction issues.

Human Resources Risk

The success of Cineplex depends upon the retention of senior executive management, including the Chief Executive Offer, Ellis Jacob. The loss of services of one or more members of the executive management team could adversely affect Cineplex’s business, results of operations and Cineplex’s ability to effectively pursue its business strategy. Cineplex does not maintain key-man life insurance for any of its employees but does provide long-term incentive programs to retain key personnel.

Cineplex employs approximately 11,000 people, of whom approximately 90% are hourly workers whose compensation is based on the prevailing provincial minimum wages with incremental adjustments as required to match market conditions. Any increase in these minimum wages will increase employee related costs. Approximately 6% of Cineplex’s employees are represented by unions, located primarily in the province of Quebec. Because of the small percentage of employees represented by unions, the impact of labour disruption nationally is low.

Real Estate Risk

The acquisition and development of potential operating locations by Cineplex is dependent on the ability of Cineplex to identify, acquire and develop suitable sites for potential locations in both new and existing markets. The cost to develop locations is substantial, but its success is not assured. While Cineplex is careful in selecting sites, the significant time lag from identifying a new site to the location opening can result in a change in local market circumstances and could negatively impact the operation’s chance of success. In addition, the building of new operating locations may draw audiences away from existing sites operated by Cineplex. Cineplex considers the overall return for the locations in a geographic area when making the decision to build new locations.

The majority of Cineplex’s operating sites are subject to long-term leases. In accordance with the terms of these leases, Cineplex is responsible for costs associated with utilities consumed at the location and property taxes associated with the location. Cineplex has no control over these costs and these costs have been increasing over the last number of years.

Cineplex continues to be liable for obligations under theatre leases in respect of certain divested theatres. If the transferee of any such theatres fails to satisfy the obligations under such leases, Cineplex may be required to assume the lease obligations.



Financial Markets Risk

Cineplex requires efficient access to capital in order to fuel growth, execute strategies, and generate future financial returns. For this reason Cineplex has the Revolving Facility available.

Cineplex hedges interest rates on the Term Facility, thereby minimizing the impact of significant fluctuations in the market rates. Cineplex’s exposure to currency and commodity risk is minimal as the majority of its transactions are in Canadian dollars and commodity costs are not a significant component of the overall cost structure. Counter party risk on the interest rate swap agreements is minimized through entering into these transactions with Cineplex’s lenders. Sourcing Risk

Substantially all of Cineplex’s beverage concessions are products of one major beverage company. If this relationship was disrupted, Cineplex may be forced to negotiate a substitute arrangement that could be less favourable to Cineplex than the current arrangement. Any such disruptions could therefore increase the cost of concessions and harm Cineplex’s operating margins, which would adversely affect its business and results of operations.

Cineplex relies on a single company for the distribution of a substantial portion of its concession supplies. If this distribution relationship were disrupted, Cineplex could be forced to negotiate a number of substitute arrangements with alternative distributors that could, in the aggregate, be less favourable to Cineplex than the current arrangement.

Cineplex relies on one major supplier to source popcorn seed, and has entered contracts with this supplier to guarantee a fixed supply. As crop yields can be affected by drought or other environmental factors, the supplier may be unable to fulfill the whole of its contractual commitments, such that Cineplex would need to source the remaining needed corn product from other suppliers at a potentially higher cost.

In order to minimize operating risks, Cineplex actively monitors and manages its relationships with its key suppliers.

Health and Safety Risk

Cineplex is subject to risks associated with food safety, product handling and the operation of machinery. Cineplex is in compliance with health and safety legislation and conducts employee awareness and training programs on a regular basis. Health and safety issues related to our guests such as pandemics and bedbug concerns are risks that may deter people from attending theatres. For those risks that it can control, Cineplex has programs in place to mitigate its exposure.



Business Continuity Risk

Cineplex’s primary source of revenue is derived from providing an out of home entertainment experience. A terrorist threat or the outbreak of a pandemic may cause people to stay away from public places including movie theatres which would significantly impact business results. Cineplex operates in ten provinces which mitigates the risk to a specific location or locations. Cineplex also has communications and public relations procedures to deal with crises of this nature. These procedures identify risks, prioritize key services, plan for large staff absences and clarify communication processes. However, should there be a national threat, it is uncertain to what extent Cineplex could mitigate this risk and the costs that may be associated with any such crises. Further, Cineplex purchases insurance coverage from third-party insurance companies to cover certain operational risks, and is self-insured for other matters.

Legal, Taxation and Accounting Risk

Changes to any of the various federal, provincial and municipal laws, rules and regulations related to Cineplex’s business could have a material impact on its financial results. Compliance with any proposed changes could also result in significant cost to Cineplex. Failure to fully comply with various laws, rules and regulations may expose Cineplex to proceedings which may materially affect its performance.

To mitigate these risks, Cineplex uses third party tax and legal experts to assist in structuring significant transactions and contracts. Cineplex also has systems and controls that ensure the timely production of financial information in order to meet regulatory requirements and has implemented disclosure controls and internal controls over financial reporting which are tested for effectiveness on an ongoing basis. Cineplex also promotes a strong ethical culture through its values and code of conduct.

Environment/Sustainability Risk

Cineplex’s business is primarily a service and retail business which delivers guest experiences rather than physical commercial products. Cineplex operates multiple locations in major urban markets and does not anticipate any dramatic changes to operations due to climate change. Because of these factors, should legislation change to require more stringent management of carbon emissions or more stringent reporting of environmental impacts, Cineplex anticipates this will result in minimal cost increases or changes to operating procedures.

Information Management Risk

Cineplex requires relevant and reliable information to support the execution of its business model and reporting on performance. The integrity, reliability and security of information are critical to Cineplex’s daily and strategic operations. Inaccurate, incomplete or unavailable information or inappropriate access to information could lead to incorrect financial or operational reporting, poor decisions, privacy breaches or inappropriate disclosure of sensitive information. Cineplex continues to strengthen general information technology controls by developing operating policies and procedures in the areas of change management, computer operations and security access.

Cineplex needs an effective information technology infrastructure including hardware, networks, software, people and processes to effectively support the current and future needs of the business in an efficient, cost-effective and well-controlled fashion. Cineplex is continually upgrading systems and infrastructure to meet business needs.

At select times during the normal course of business, Cineplex collects and stores sensitive data, including intellectual property, proprietary business information including data with respect to suppliers, employees and business partners, as well as some personally identifiable information of Cineplex’s customers. The secure processing, maintenance and transmission of this information is critical to Cineplex’s operations and business strategy. As such Cineplex adheres to industry standards for the payment card industry (“PCI”) data security standard (“DSS”) compliance, as well as undertaking commercially reasonable efforts for non-financial data.



Cineplex recognizes that security breaches and other disruptions could compromise this information and expose Cineplex to liability, which would cause its business and reputation to suffer. Despite security measures, Cineplex’s information technology and infrastructure may be vulnerable to unforeseen attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise Cineplex’s networks and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt Cineplex’s operations and the services provided to customers, damage Cineplex’s reputation and cause a loss of confidence in Cineplex’s products and services, which could adversely affect Cineplex’s business, financial condition, results of operations and cash flows.

15. CONTROLS AND PROCEDURES

15.1 DISCLOSURE CONTROLS AND PROCEDURES

Management of Cineplex is responsible for establishing and maintaining disclosure controls and procedures for Cineplex as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Management has designed such disclosure controls and procedures, or caused them to be designed under its supervision, to provide reasonable assurance that material information relating to Cineplex, including its consolidated subsidiaries, is made known to the Chief Executive Officer and the Chief Financial Officer by others within those entities, particularly during the period in which the annual filings are being prepared.

15.2 INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management of Cineplex is responsible for designing and evaluating the effectiveness of internal controls over financial reporting for Cineplex as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Management has designed such internal controls over financial reporting using the Integrated Control - Integrated Framework: 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP.

There has been no change in Cineplex’s internal controls over financial reporting that occurred during the most recently completed interim period that has materially affected, or is reasonably likely to materially affect, Cineplex’s internal control over financial reporting.

16. SUBSEQUENT EVENT

On October 1, 2015, Cineplex acquired the 50% of the issued and outstanding equity of CSI that Cineplex did not already own, for approximately $21.0 million cash. With the closing of this transaction, Cineplex now owns 100% of the issued and outstanding equity of CSI. The financial position and operating results of CSI will be consolidated in Cineplex’s financial statements beginning October 1, 2015.

17. OUTLOOK

The following discussion is qualified in its entirety by the caution regarding forward-looking statements at the beginning of this MD&A and Section 14, Risk management.

THEATRE EXHIBITION

Cineplex box office revenues increased 6.1% as compared to the prior year period due to a 7.6% increase in attendance, due to the stronger slate of films released in the current period compared to the prior year period.



Box office revenues are highly dependent on the marketability, quality and appeal of the film product released by major motion picture studios. Highly anticipated films to be released in the balance of 2015 include The Peanuts Movie, Spectre, The Hunger Games: Mockingjay - Part 2, The Good Dinosaur and Star Wars: The Force Awakens.

Cineplex continues to focus on providing guests with a variety of premium viewing options through which to enjoy the theatre experience. These premium-priced offerings, which include UltraAVX, VIP Cinemas, IMAX and 3D, generate higher revenues per patron and expand the customer base. Cineplex believes that 3D, UltraAVX, IMAX and VIP formats provide an enhanced guest experience and will continue to charge a ticket price premium for films and events presented in these formats.

In the next few years, Cineplex plans to open two to three new theatres per year while also expanding its premium offerings across the circuit. Cineplex is also focused on providing guests with a variety of premium viewing options through which to enjoy the theatre experience, and will continue to expand premium viewing options throughout its circuit in 2015 and beyond. VIP Cinemas and other premium viewing options are a key component to Cineplex’s theatre exhibition strategy, and have been well received by audiences.

FOOD SERVICE

Cineplex reported record third quarter food service revenues in the period, and CPP increased 6.3% to a third quarter record of $5.43. Although pricing does impact CPP, Cineplex’s core focus is on operational execution, promotions and providing the optimal product mix to provide further growth in this area. As part of this strategy, Cineplex continues to expand its in-house brands Outtakes, Poptopia and YoYo’s (in which Cineplex is a joint venture partner) across the circuit; as well as leveraging digital menu board technologies which provide guests with more interactive messaging during visits to the food service locations.

AMUSEMENT GAMING AND THE REC ROOM

The acquisition of New Way Sales during 2011 and the creation of CSI in the first quarter of 2012 has allowed Cineplex to vertically integrate its gaming business. CSI supplies and services all of the games in Cineplex’s circuit, while also supplying equipment to third party arcades, amusement centers, bowling alleys, amusement parks and theatre circuits, in addition to owning and operating Playdium, a family entertainment centre located in Mississauga, Ontario. In 2015, this integration has continued as subsequent to the period end Cineplex acquired the 50% of the issued and outstanding equity of CSI that it did not already own. Cineplex now own 100% of the issued and outstanding equity of CSI, which during the year ended December 31, 2014 generated $60.6 million in gross gaming revenues, inclusive of revenues earned from Cineplex.

During 2015, CSI, through its wholly owned subsidiary Premier Amusements Inc., acquired an 80% interest in Brady Starburst LLC. The new company, formed with Brady Distribution Company, created one of North America’s largest distributors of amusement games and vending machines.

During 2015, Cineplex announced its plans for The Rec Room, a social entertainment destination featuring a wide range of entertainment options including an attractions area featuring simulation, redemption and recreational gaming, an auditorium-style live entertainment venue and a theatre-sized high definition screen for watching a wide range of entertainment. This entertainment will be complemented by an upscale casual dining restaurant, featuring an open kitchen and contemporary menu, as well as a centre bar with a wide range of digital monitors and a large screen above the bar for watching the big game or other major events.



During the period, Cineplex acquired an 80% interest in the operational assets of WG Limited, a leading online gaming platform that facilitates tournaments, leagues and gaming ladders for the competitive gaming community. This acquisition resulted in the creation of a new company focused on eSports by creating a community that connects live online gaming with unique in-theatre tournament experiences to be held in Cineplex theatres across the country. Beginning in the fourth quarter of 2015, Cineplex and WGN will invite gamers to compete in a number of online tournaments across the most popular gaming titles, leading to regional qualifiers at Cineplex locations, ending with a National Championship live finals at a Cineplex flagship location, bringing a new and exciting alternative programming option for guests across the country. MEDIA

Cineplex believes that no other medium engages viewers like the cinema experience: engaged moviegoers, sitting in a darkened theatre, ready to be entertained and fully focused on the screen. Research has shown that cinema media advertising reaches the most sought-after demographics, as well as Canada’s high-income households and educated populations. Cineplex Media will continue to leverage its new media opportunities within Cineplex’s theatres, including digital poster cases, the Interactive Media Zone in select theatres, and the national rollout of Timeplay, the third-party app that allows Cineplex to sell media integrated into real-time content on the big screen.

Cineplex continues to enhance its media offerings outside of the theatre setting through its Cineplex Digital Media business, which includes CDS and CDN. Cineplex Digital Media is poised for growth in 2015 and beyond with CDN’s completion of the national launch of TimsTV in 2014 in partnership with Tim Hortons. Additionally, CDN has opened an office in the United States, in order to better service its current base of US customers and to expand its presence there. CDS and Oxford continue to roll out North America’s first place-based digital ecosystem in high-profile shopping centres across Canada. Cineplex believes that the strengths of Cineplex Digital Media will make Cineplex a leader in the indoor digital signage industry and provide a platform for significant growth throughout North America.

ALTERNATIVE PROGRAMMING

During the third quarter of 2015, Cineplex offered a wide variety of alternative programming, including live and encore performances from the Metropolitan Opera: Live in HD series, ethnic film programming, In The Gallery presentations and encore presentations of The National Theatre Live. Cineplex also screened the documentary Kurt Cobain: Montage of Heck and partnered with HBO Canada to show the Season 5 finale of Game of Thrones live in participating theatres across Canada.

DIGITAL COMMERCE

As at home and on-the-go content distribution and consumption continues to grow and evolve, Cineplex believes it is well positioned to take advantage of this exciting market with its digital commerce platform, the Cineplex Store, which offers enhanced device integration as well as download capabilities, supporting over thousands of movies that can be rented, purchased or viewed on multiple devices. The Cineplex Store supports the widest range of devices in Canada on which to watch content, and when combined with the continued expansion of SuperTicket and other offerings, provides exciting opportunities for Cineplex in this emerging market.

Cineplex will continue to offer promotions to grow Cineplex Store revenues including tie-ins with the SCENE loyalty program through the new digital delivery platform with an expanded device ecosystem for DTO and VoD sales.



SCENE

The SCENE loyalty program continues to grow its membership base, with approximately 7.1 million members at September 30, 2015. Cineplex continues to integrate SCENE elements into various film and other promotion campaigns, applying the data accumulated in the SCENE database to provide members targeted offers. Cineplex expects these programs to encourage increased frequency of visitation by SCENE members and additional revenue opportunities through the use of the database and additional partnership agreements.

As SCENE looks to continue to grow its membership and reach, it has entered into a strategic marketing partnerships with sports and active lifestyle retailer SportChek and its exclusive restaurant partner CARA. These partnerships extend the benefits of SCENE by enabling members to earn and redeem points for products available at more than 180 SportChek and at more than 800 CARA restaurants across Canada.

Over the nine years since the launch of the SCENE program, the way that Cineplex’s guests see movies has changed with the introduction of more 3D screens, UltraAVX and VIP auditoriums. As a result of these changes, effective November 4, 2015 SCENE is changing to allow members to earn and redeem SCENE points based on the movie experience they choose, with premium movies earning 50% more SCENE points and VIP movies earning 100% more SCENE points. Redeeming for premium movies will require 50% more points and redeeming for VIP movies will require 100% more points.

Subsequent to the period end, Cineplex and the Bank of Nova Scotia announced the extension of the SCENE loyalty program for an additional 10 years, until October 31, 2025.

FINANCIAL OUTLOOK

During the twelve months ended September 30, 2015, Cineplex generated adjusted free cash flow per Share of $2.330, compared to $2.212 in the prior year period. Cineplex declared dividends per Share of $1.525 and $1.465, respectively, in each period. The payout ratios for these periods were approximately 65.5% and 66.2% , respectively. The acquisition of AMC Ventures Inc. and its subsequent wind-up into Cineplex resulted in non-capital losses of $147.0 million being made available to offset taxable income earned by Cineplex beginning in 2013, positively impacting adjusted free cash flow per Share and the payout ratios for the 2014 period. None of the acquired losses are available to be used to reduce taxable income in 2015.

Under Cineplex’s Credit Facilities, which mature in October 2018, Cineplex has a $150.0 million Term Facility and a $250.0 million Revolving Facility which is available to finance acquisitions, new construction, media growth projects, working capital and dividends. As at September 30, 2015, Cineplex had $84.6 million available on the Revolving Facility. As defined under the Credit Facilities, as at September 30, 2015, Cineplex reported a leverage ratio of 1.47x as compared to a covenant of 3.50x.

Between the free cash flow generated in excess of the dividends paid and amounts available under its Credit Facilities, Cineplex believes that it has sufficient financial resources to meet its ongoing requirements for capital expenditures, investments in working capital and dividends. However, Cineplex’s needs may change and in such event Cineplex’s ability to satisfy its obligations will be dependent upon future financial performance, which in turn will be subject to financial, tax, business and other factors, including elements beyond Cineplex’s control.

18. NON-GAAP MEASURES

The following measures included in this MD&A do not have a standardized meaning under GAAP and may not be comparable to similar measures provided by other issuers. Cineplex includes these measures because its management believes that they assist investors in assessing financial performance.



18.1 EBITDA AND ADJUSTED EBITDA

Management defines EBITDA as earnings before interest income and expense, income taxes and amortization expense. Adjusted EBITDA excludes the change in fair value of financial instrument, loss on disposal of assets, the equity income of CDCP, depreciation, amortization, interest and taxes of Cineplex’s other joint ventures and the non-controlling interest share of WGN’s results. Cineplex’s management uses adjusted EBITDA to evaluate performance primarily because of the significant effect certain unusual or non-recurring charges and other items have on EBITDA from period to period. EBITDA, adjusted for various unusual items, is also used to define certain financial covenants in Cineplex’s Credit Facilities. Management calculates adjusted EBITDA margin by dividing adjusted EBITDA by total revenues.

EBITDA and adjusted EBITDA are non-GAAP measures generally used as an indicator of financial performance and they should not be seen as a measure of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Cineplex’s EBITDA and adjusted EBITDA may differ from similar calculations as reported by other entities and accordingly may not be comparable to EBITDA or adjusted EBITDA as reported by other entities.

The following represents management’s calculation of EBITDA and adjusted EBITDA (expressed in thousands of Canadian dollars):

Three months endedSeptember 30,

Nine months endedSeptember 30,

2015 2014 2015 2014Net income $ 21,439 $ 15,914 $ 57,444 $ 44,190

Depreciation and amortization 22,111 19,665 64,813 57,528Interest expense 5,919 5,472 17,149 16,272Interest income (46) (172) (134) (285)Current income tax expense 8,761 1,007 21,836 2,387Deferred income tax recovery (expense) (300) 5,012 114 14,562

EBITDA $ 57,884 $ 46,898 $ 161,222 $ 134,654

Loss on disposal of assets 987 834 2,337 2,767CDCP equity income (i) (428) (388) (720) (1,008)Non-controlling interest EBITDA of WGN 34 — 34 —Depreciation and amortization - joint ventures (ii) 522 520 1,539 1,604Joint venture taxes and interest (ii) 82 178 227 336Adjusted EBITDA $ 59,081 $ 48,042 $ 164,639 $ 138,353(i) CDCP equity income not included in adjusted EBITDA as CDCP is a limited-life financing vehicle that is funded by virtual print fees collected from distributors.(ii) Includes the joint ventures with the exception of CDCP (see (i) above).

18.2 ADJUSTED FREE CASH FLOW

Free cash flow measures the amount of cash from operating activities net of capital expenditures available for activities such as repayment of debt, dividends to owners, and investments in future growth through acquisitions. Free cash flow is a non-GAAP measure generally used by Canadian corporations as an indicator of financial performance, and it should not be viewed as a measure of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Standardized free cash flow is a non-GAAP measure recommended by the CICA in its 2008 interpretive release, Improved Communication with Non-GAAP Financial Measures: General Principles and Guidance for Reporting EBITDA and Free Cash Flow, and is designed to enhance comparability.

Cineplex presents standardized free cash flow and adjusted free cash flow per Share because they are key measures used by investors to value and assess Cineplex. Management of Cineplex defines adjusted free cash flow as standardized free cash flow adjusted for certain items, and considers adjusted free cash flow the amount available for distribution to Shareholders. Standardized free cash flow is defined by the CICA as cash from



operating activities as reported in the GAAP financial statements, less total capital expenditures minus proceeds from the disposition of capital assets other than those of discontinued operations, as reported in the GAAP financial statements; and dividends, when stipulated, unless deducted in arriving at cash flows from operating activities. The standardized free cash flow calculation excludes common dividends and others that are declared at the Board’s discretion.

Management calculates adjusted free cash flow per Share as follows (expressed in thousands of Canadian dollars except Shares outstanding, and per Share data):



2015 2014 2015 2014

Cash provided by operating activities $ 36,272 $ 22,910 $ 74,248 $ 44,833Less: Total capital expenditures net of proceeds on sale of assets (25,560) (33,465) (72,777) (83,756)

Standardized free cash flow 10,712 (10,555) 1,471 (38,923)

Add/(Less):Changes in operating assets and liabilities (i) 9,280 20,746 49,937 79,257Changes in operating assets and liabilities of joint ventures (i) (2,135) (2,400) (362) (2,193)Tenant inducements (ii) — (555) (757) (3,397)Principal component of finance lease obligations (671) (592) (1,980) (1,778)Growth capital expenditures and other (iii) 16,797 27,668 51,211 65,996Share of income of joint ventures, net of non-cash depreciation (iv) 1,436 1,431 3,632 3,095Non-controlling interest EBITDA of WGN 34 — 34 — Net cash received from CDCP (iv) 407 140 1,163 909Adjusted free cash flow $ 35,860 $ 35,883 $ 104,349 $ 102,966

Average number of Shares outstanding 63,086,232 62,987,992 63,064,784 62,965,606

Adjusted free cash flow per Share $ 0.568 $ 0.570 $ 1.655 $ 1.635Dividends declared $ 0.390 $ 0.375 $ 1.150 $ 1.105(i) Changes in operating assets and liabilities are not considered a source or use of adjusted free cash flow.(ii) Tenant inducements received are for the purpose of funding new theatre capital expenditures and are not considered a source of adjusted free cash flow.(iii) Growth capital expenditures and other represent expenditures on Board approved projects, exclude maintenance capital expenditures, and are net of proceeds on asset sales. The Revolving Facility (discussed above in Section 7.4, Credit Facilities) is available to Cineplex to fund Board approved projects. (iv) Excludes the share of income of CDCP, as CDCP is a limited-life financing vehicle funded by virtual print fees collected from distributors. Cash invested into CDCP, as well as cash distributions received from CDCP, are considered to be uses and sources of adjusted free cash flow.



Alternatively, the calculation of adjusted free cash flow and distributable cash using the income statement as a reference point would be as follows (expressed in thousands of Canadian dollars):



2015 2014 2015 2014

Net income $ 21,439 $ 15,914 $ 57,444 $ 44,190Adjust for:Depreciation and amortization 22,111 19,665 64,813 57,528Loss on disposal of assets 987 834 2,337 2,767Non-cash interest (i) 1,958 1,663 5,628 4,906Share of income of CDCP (ii) (428) (388) (720) (1,008)Non-cash depreciation of joint ventures 522 520 1,539 1,604Deferred income tax recovery(expense) (300) 5,012 114 14,562Joint venture deferred income tax expense 82 236 227 403Maintenance capital expenditures (8,763) (5,797) (21,566) (17,760)Principal component of finance lease obligations (671) (592) (1,980) (1,778)Non-controlling interest EBITDA of WGN 34 — 34 —Net cash received from CDCP (ii) 407 140 1,163 909Non-cash items:Amortization of tenant inducements, rent averaging liabilitiesand fair value lease contract assets (1,947) (1,769) (5,950) (4,648)Non-cash Share-based compensation 429 445 1,266 1,291

Adjusted free cash flow $ 35,860 $ 35,883 $ 104,349 $ 102,966(i) Non-cash interest includes amortization of deferred financing costs on the long-term debt, accretion expense on the convertible debentures and other non-cash interest expense items. (ii) Excludes the share of income of CDCP, as CDCP is a limited-life financing vehicle funded by virtual print fees collected fromdistributors. Cash invested into CDCP, as well as cash distributions received from CDCP, are considered to be uses and sources ofadjusted free cash flow.

18.3 OTHER NON-GAAP MEASURES MONITORED BY MANAGEMENT

Management uses the following non-GAAP measures as indicators of performance for Cineplex.

Per Patron Revenue MetricsCineplex reviews per patron metrics as they relate to box office revenues and food service revenues such as BPP, CPP, BPP excluding premium priced product, and concession margin per patron, as these are key measures used by investors to value and assess Cineplex’s performance, and are widely used in the theatre exhibition industry. Management of Cineplex defines these metrics as follows:

Attendance: Attendance is calculated as the total number of paying patrons that frequent Cineplex’s theatres during the period.BPP: Calculated as total box office revenues divided by total paid attendance for the period.BPP excluding premium priced product: Calculated as total box office revenues for the period, less box office revenues from 3D, UltraAVX, VIP and IMAX product; divided by total paid attendance for the period, less paid attendance for 3D, UltraAVX, VIP and IMAX product.CPP: Calculated as total food service revenues divided by total paid attendance for the period.Premium priced product: Defined as 3D, UltraAVX, IMAX and VIP film product.Concession margin per patron: Calculated as total food service revenues less total cost of food service, divided by attendance for the period.



Same Store AnalysisCineplex reviews and reports same store metrics relating to box office revenues, concession revenues, rent expense and payroll expense, as these measures are widely used in the theatre exhibition industry as well as other retail industries.

Same store metrics are calculated by removing the results for all theatres that have been opened, acquired, closed or otherwise disposed of subsequent to the start of the prior year comparative period. For the three months ended September 30, 2015 the impact of the four locations that have been opened or acquired and the two locations that have been closed have been excluded, resulting in 158 theatres being included in the same store metrics. For the nine months ended September 30, 2015 the impact of the six locations that have been opened or acquired and the three locations that have been closed have been excluded, resulting in 156 theatres being included in the same store metrics.

Cost of sales percentagesCineplex reviews and reports cost of sales percentages for its two largest revenue sources, box office revenues and food service revenues as these measures are widely used in the theatre exhibition industry. These measures are reported as film cost percentage and food service cost percentage, respectively, and are calculated as follows:

Film cost percentage: Calculated as total film cost expense divided by total box office revenues for the period.Concession cost percentage: Calculated as total cost of food service divided by total food service revenues for the period.

Cineplex Inc.Interim Condensed Consolidated Balance Sheets(Unaudited)———————————————————————————————————————————(expressed in thousands of Canadian dollars)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.CINEPLEX INC.2015 THIRD QUARTER REPORT - CONSOLIDATED BALANCE SHEETS

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September 30, December 31,2015 2014

AssetsCurrent assetsCash and cash equivalents $ 24,795 $ 34,367Trade and other receivables 56,576 101,462Inventories 8,086 7,978Prepaid expenses and other current assets 12,697 8,102

102,154 151,909

Non-current assetsProperty, equipment and leaseholds 507,348 495,532Deferred income taxes 6,531 6,971Interests in joint ventures 47,307 46,457Intangible assets 123,247 109,746Goodwill (note 3) 801,335 798,801

$ 1,587,922 $ 1,609,416

Business acquisitions (note 3)

Subsequent event (note 10)

Cineplex Inc.Interim Condensed Consolidated Balance Sheets...continued(Unaudited)————————————————————————————————————————————(expressed in thousands of Canadian dollars)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.CINEPLEX INC.2015 THIRD QUARTER REPORT - CONSOLIDATED BALANCE SHEETS

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September 30, December 31,2015 2014

Liabilities

Current liabilitiesAccounts payable and accrued expenses (note 3) $ 105,631 $ 159,152Share-based compensation (note 4) 7,225 6,160Dividends payable 8,201 7,877Income taxes payable 16,835 9,735Deferred revenue 107,103 149,644Finance lease obligations 2,888 2,670Fair value of interest rate swap agreements 1,372 692

249,255 335,930

Non-current liabilitiesShare-based compensation (note 4) 17,728 15,504Long-term debt 308,194 229,754Fair value of interest rate swap agreements 4,482 2,117Finance lease obligations 12,811 15,008Post-employment benefit obligations 7,154 6,977Other liabilities 171,703 173,550Convertible debentures 100,211 98,727

622,283 541,637

Total liabilities 871,538 877,567

Equity

Share capital (note 5) 854,595 854,073Deficit (138,775) (123,771)Hedging reserves and other (5,376) (3,405)Contributed surplus 758 4,952Cumulative translation adjustment (note 3) 324 —

Total equity attributable to owners of Cineplex 711,526 731,849

Non-controlling interests (note 3) 4,858 —

Total equity 716,384 731,849

$ 1,587,922 $ 1,609,416

Approved by the Board of Directors

“Phyllis Yaffe” “Robert Steacy”Director Director

Cineplex Inc.Interim Condensed Consolidated Statements of Operations(Unaudited)

———————————————————————————————————————————(expressed in thousands of Canadian dollars, except per share amounts)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.CINEPLEX INC.2015 THIRD QUARTER REPORT - CONSOLIDATED STATEMENTS OF OPERATIONS

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2015 2014 2015 2014

RevenuesBox office $172,571 $162,574 $514,814 $500,218Food service 105,464 92,094 304,646 277,261Media 34,296 31,992 98,388 87,337Other 15,915 12,330 45,723 37,689

328,246 298,990 963,571 902,505

ExpensesFilm cost 91,567 85,499 273,893 260,907Cost of food service 22,325 19,848 65,694 59,876Depreciation and amortization 22,111 19,665 64,813 57,528Loss on disposal of assets 987 834 2,337 2,767Other costs (note 6) 156,743 146,974 463,011 446,397Share of income of joint ventures (1,260) (1,063) (2,586) (2,096)Interest expense 5,919 5,472 17,149 16,272Interest income (46) (172) (134) (285)

298,346 277,057 884,177 841,366

Income before income taxes 29,900 21,933 79,394 61,139

Provision for income taxesCurrent 8,761 1,007 21,836 2,387Deferred (300) 5,012 114 14,562

8,461 6,019 21,950 16,949

Net income $ 21,439 $ 15,914 $ 57,444 $ 44,190

Attributable to:Owners of Cineplex $ 21,520 $ 15,914 $ 57,525 $ 44,190Non-controlling interests (81) — (81) —

Net income $ 21,439 $ 15,914 $ 57,444 $ 44,190

Basic net income per share attributable to owners of Cineplex (note 7) $ 0.34 $ 0.25 $ 0.91 $ 0.70

Diluted net income per share attributable to owners of Cineplex (note 7) $ 0.34 $ 0.25 $ 0.90 $ 0.70

Cineplex Inc.Interim Condensed Consolidated Statements of Comprehensive Income(Unaudited)————————————————————————————————————————————(expressed in thousands of Canadian dollars)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.CINEPLEX INC.2015 THIRD QUARTER REPORT - CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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2015 2014 2015 2014

Net income $ 21,439 $ 15,914 $ 57,444 $ 44,190

Other comprehensive income (loss)

Items that will be reclassified subsequently to net income:(Loss) income on hedging instruments (189) 73 (2,689) (1,483)Associated deferred income taxes recovery (expense) 50 (19) 718 392Foreign currency translation adjustment 324 — 324 —

Other comprehensive income (loss) 185 54 (1,647) (1,091)

Comprehensive income $ 21,624 $ 15,968 $ 55,797 $ 43,099

Attributable to:Owners of Cineplex $ 21,705 $ 15,968 $ 55,878 $ 43,099Non-controlling interests (81) — (81) —

Comprehensive income $ 21,624 $ 15,968 $ 55,797 $ 43,099

Cineplex Inc.Interim Condensed Consolidated Statements of Changes in Equity(Unaudited)————————————————————————————————————————————(expressed in thousands of Canadian dollars)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.CINEPLEX INC.2015 THIRD QUARTER REPORT - CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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Share capital

Contributedsurplus

Hedgingreserves and

other

Cumulativetranslationadjustment Deficit

Non-controlling

interests Total(note 5) (note 3) (note 3) (note 3)

Balance - January 1,2015 $854,073 $ 4,952 $ (3,405) $ — $(123,771) $ — $ 731,849

Net income — — — — 57,525 (81) 57,444Other comprehensive

(loss) (page 4) — — (1,971) 324 — — (1,647)Total comprehensive

income — — (1,971) 324 57,525 (81) 55,797Dividends declared — — — — (72,529) — (72,529)Share option expense — 1,267 — — — — 1,267Issuance of shares on

exercise of options 522 (522) — — — — —WGN purchase obligation — (4,939) — — — — (4,939)WGN non-controlling

interests recognized on acquisition — — — — — 4,939 4,939

Balance - September 30,2015 $854,595 $ 758 $ (5,376) $ 324 $(138,775) $ 4,858 $ 716,384

Balance - January 1,2014 $853,411 $ 3,899 $ (1,715) $ — $(107,323) $ — $ 748,272

Net income — — — — 44,190 — 44,190Other comprehensive

(loss) (page 4) — — (1,091) — — — (1,091)Total comprehensive

income — — (1,091) — 44,190 — 43,099Dividends declared — — — — (69,582) — (69,582)Share option expense — 1,291 — — — — 1,291Issuance of shares on

exercise of options 485 (485) — — — — —

Balance - September 30,2014 $853,896 $ 4,705 $ (2,806) $ — $(132,715) $ — $ 723,080

Cineplex Inc.Interim Condensed Consolidated Statements of Cash Flows(Unaudited)————————————————————————————————————————————(expressed in thousands of Canadian dollars)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.CINEPLEX INC.2015 THIRD QUARTER REPORT - CONSOLIDATED STATEMENTS OF CASH FLOWS (6)



2015 2014 2015 2014Cash provided by (used in)

Operating activitiesNet income $ 21,439 $ 15,914 $ 57,444 $ 44,190Adjustments to reconcile net income to net cash provided byoperating activities

Depreciation and amortization of property, equipmentand leaseholds, and intangible assets 22,111 19,665 64,813 57,528Amortization of tenant inducements, rent averagingliabilities and fair value lease contract liabilities (1,947) (1,769) (5,950) (4,648)Accretion of debt issuance costs and other non-cashinterest 1,403 1,230 3,995 3,581Loss on disposal of assets 987 834 2,337 2,767Deferred income taxes (300) 5,012 114 14,562Interest rate swap agreements - non-cash interest 62 (27) 149 (73)Non-cash share-based compensation 429 445 1,266 1,291Accretion of convertible debentures 493 460 1,484 1,398Net change in interests in joint ventures 875 1,337 (2,224) 97

Tenant inducements — 555 757 3,397Changes in operating assets and liabilities (note 8) (9,280) (20,746) (49,937) (79,257)

Net cash provided by operating activities 36,272 22,910 74,248 44,833

Investing activitiesProceeds from sale of assets — 1 108 405Purchases of property, equipment and leaseholds (25,560) (33,466) (72,885) (84,161)Acquisition of businesses, net of cash acquired (note 3) (12,472) — (15,630) (2,466)Intangible assets addition (355) — (469) (2,750)Net cash received from CDCP 407 140 1,163 909

Net cash used in investing activities (37,980) (33,325) (87,713) (88,063)

Financing activitiesDividends paid (24,603) (23,620) (72,204) (69,260)Borrowings under credit facility, net 28,000 29,000 78,000 79,000Payments under finance leases (671) (592) (1,980) (1,778)

Net cash provided by financing activities 2,726 4,788 3,816 7,962

Effect of exchange rate differences on cash 77 — 77 —

Increase (decrease) in cash and cash equivalents 1,095 (5,627) (9,572) (35,268)Cash and cash equivalents - Beginning of period 23,700 14,499 34,367 44,140

Cash and cash equivalents - End of period $ 24,795 $ 8,872 $ 24,795 $ 8,872

Supplemental informationCash paid for interest $ 2,354 $ 2,579 $ 9,632 $ 10,000Cash paid for income taxes $ 1,998 $ 186 $ 13,674 $ 2,172

Cineplex Inc.Notes to Interim Condensed Consolidated Financial Statements(Unaudited)———————————————————————————————————————————(expressed in thousands of Canadian dollars, except per share amounts)

CINEPLEX INC.2015 THIRD QUARTER REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7)

1. General information

Cineplex Inc. (“Cineplex”) an Ontario, Canada corporation, is Canada’s largest film exhibition organization, with theatres in ten provinces. Cineplex operates primarily through its wholly owned subsidiaries, Cineplex Entertainment Limited Partnership (the “Partnership”), Famous Players Limited Partnership (“Famous Players”), Galaxy Entertainment Inc. (“GEI”), Cineplex Digital Media Inc. (“CDM”), Cineplex Digital Networks Inc. (“CDN”), Cineplex Starburst Inc. (“CSI”), and its majority-owned subsidiary, WorldGaming Network LP (“WGN”). Cineplex is headquartered at 1303 Yonge Street, Toronto, Ontario, M4T 2Y9.

The Board of Directors approved these consolidated financial statements on November 9, 2015.

2. Basis of presentation and accounting standards changes

Basis of preparation and measurement

Cineplex prepares its unaudited interim condensed consolidated financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), defined as International Financial Reporting Standards (“IFRS”) as set out in the CPA Canada Handbook. The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying Cineplex’s accounting policies. These unaudited interim condensed consolidated financial statements are presented in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting. The disclosures contained in these unaudited interim condensed consolidated financial statements do not contain all requirements of Canadian GAAP for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2014. These unaudited interim condensed consolidated financial statements follow the same accounting policies and methods of application as the audited financial statements for the year ended December 31, 2014.

Accounting standards issued but not yet applied

IFRS 9, Financial Instruments (“IFRS 9”), was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in International Accounting Standard (“IAS”) 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through OCI. Where equity instruments are measured at fair value through OCI, dividends are recognized in profit or loss to the extent that they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in AOCI indefinitely. The adoption of this standard did not have a material effect on Cineplex’s financial statements.

Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instrument: Recognition and Measurement (“IAS 39”), except that fair value changes due to credit risk for liabilities designated at fair value through profit or loss are generally recorded in OCI. In July 2014, the effective date was revised to January 1, 2018 with earlier application permitted. Cineplex has not yet assessed the impact of this standard and amendments or determined whether it will early adopt them.



IFRS 9 was amended in November 2013, to (i) include guidance on hedge accounting, and (ii) allow entities to early adopt the requirement to recognize changes in fair value attributable to changes in an entity’s own credit risk, from financial liabilities designated under the fair value option, in OCI (without having to adopt the remainder of IFRS 9).

On May 28, 2014, the IASB issued the final revenue standard, IFRS 15 Revenue from Contracts with Customers, which will replace IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue - Barter Transactions Involving Advertising Services. The new standard will be mandatorily effective for fiscal years beginning on or after January 1, 2018, and interim periods within that year. Earlier application is permitted. Cineplex is analyzing the new standard to determine its impact on Cineplex’s balance sheet and statement of operations.

IAS 1, Presentation of Financial Statements, was amended in December 2014 to clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The Amendment is effective for years beginning on or after January 1, 2016. Cineplex is analyzing the new standard to determine its impact on Cineplex’s balance sheet and statement of operations.

3. Business acquisitions

a) WorldGaming Network LPOn September 17, 2015, Cineplex acquired an 80% interest in the operating assets of WG Limited through Cineplex’s subsidiary, WorldGaming Network LP (“WGN”). WGN is a leading online gaming platform that facilitates tournaments, leagues and gaming ladders for the competitive gaming community. Intertaintech Corporation, an affiliate of WorldGaming Limited owns the other 20% of WGN.

The total cash consideration paid was $19,757. Transaction costs of $359 associated with the transaction were expensed as incurred.

Recognized amounts of identifiable assets acquired and liabilities assumed are as follows:

Assets acquired and liabilities assumedNet working capital, including cash of $7,285 $ 5,865Intangible assets, including software 18,754Property and equipment, including software 77Non-controlling interests (4,939)

Net assets 19,757Less: Cash from acquisition (7,285)

$ 12,472

Consideration given - cash paid $ 19,757Less: Cash from acquisition (7,285)

$ 12,472



As at September 30, 2015, the fair value assigned to the assets and liabilities have been determined on a provisional basis, pending finalization of the post-acquisition review of the fair value of the software and equipment acquired, and liabilities assumed. The non-controlling interests have been valued at the acquisition date fair value. Any variations may be material.

WGN’s functional currency is the United States dollar, resulting in a cumulative translation adjustment at each balance sheet date. The cumulative translation adjustment is presented in equity.

Since the acquisition, WGN did not have material revenues or income. Cineplex’s reported revenues and income would not have been materially different if the acquisition had occurred at January 1, 2015.

For the thirty-six month period beginning one year after the acquisition, Intertaintech Corporation has the right, but not the obligation to require Cineplex to acquire their entire 20% interest in WGN at fair value. Cineplex has recognized an initial liability of USD $3,750, ($4,939 based on the exchange rate on the transaction date), equivalent to the initial fair value of the non-controlling interests, reducing contributed surplus by $4,939. Fluctuations in value due to exchange rates or changes in the underlying value of the option are presented in the statement of operations. The $5,004 balance based on the exchange rate as at September 30, 2015 is included in accounts payable and accrued liabilities.

Cineplex has the right, but not the obligation to acquire Intertaintech Corporation’s entire 20% interest in WGN at fair value at any time beginning two years after the acquisition.

b) Quebec theatresOn January 1, 2015, Cineplex acquired the 50% of common shares it did not already own of a corporation that operates a theatre in St. Jean, Quebec. The investment was equity-accounted prior to the acquisition. The acquisition and consolidation resulted in the recognition of an immaterial gain. The $1,676 of goodwill recognized is not deductible for tax purposes. The total cash consideration paid was $900. All transactions costs associated with the acquisition were expensed as incurred.

On April 30, 2015, Cineplex acquired a theatre in Quebec City, Quebec for approximately $2,674, net of cash acquired. All transactions costs associated with the acquisition were expensed as incurred. Approximately $644 of the $858 goodwill recognized is deductible for income taxes.



4. Share-based compensation

Option plan

Cineplex recorded $430 and $1,267 employee benefits expense with respect to share options during the three and nine months ended September 30, 2015, respectively (2014 - $445 and $1,291, respectively).

Cineplex granted options in 2015 and 2014 as follows:

2015 2014

Number of options granted 446,004 540,519Share price $ 49.14 $ 40.45Exercise price $ 49.14 $ 40.45Expected option life (years) 4.0 3.0Volatility 16% 18%Dividend yield 3.05% 3.54%Annual risk-free rate 1.24% 1.42%

Fair value of options granted $ 4.39 $ 3.56

Upon cashless exercises, the options exercised in excess of shares issued are cancelled and returned to the pool available for future grants. At September 30, 2015, 2,589,896 options are available for grant.

A summary of option activities in 2015 and 2014 is as follows:

2015 2014

Weightedaverage

remainingcontractuallife (years)

Number ofunderlying

shares


price

Number ofunderlying

shares


price

Options outstanding, January 1 7.65 1,776,173 $ 31.37 1,459,772 $ 27.23Granted 446,004 49.14 540,519 40.45Cancelled — — (10,694) 34.89Exercised (167,157) 28.24 (153,836) 25.96

Options outstanding, September 30 7.48 2,055,020 $ 35.48 1,835,761 $ 31.18

Long-term incentive plan (“LTIP”)

For the three-year service period beginning on January 1, 2015, the LTIP award consists of a “phantom” stock plan, awarding 114,335 share equivalents (2014 - 135,602), which, subject to certain performance and market conditions, may decrease approximately 67% or increase by 100%. The base share equivalents attract compounding notional dividends at the same rate as outstanding common shares, which are notionally reinvested as additional base share equivalents. The awards will be settled in cash at the end of service periods, within 30 days of the approval of the consolidated financial statements by the Board of Directors.



LTIP costs are estimated at the grant date based on expected performance results then accrued and recognized on a graded basis over the vesting period. The effects of changes in estimates of performance results are recognized in the year of change. Forfeitures are estimated at $nil. Cineplex recognized compensation costs of $1,741, and $7,277, respectively under the LTIP for the three and nine months ended September 30, 2015, respectively (2014 - recovery of $8 and compensation costs of $2,567, respectively).

5. Share capital

Cineplex is authorized to issue an unlimited number of common shares, and 10,000,000 preferred shares of which none are outstanding. Share capital at September 30, 2015 and 2014 and transactions during the years are as follows:

2015Amount

Commonshares issued

and outstandingCommon

shares

Equitycomponent

of convertible debentures Total

Balance - December 31, 2014 63,015,023 $ 849,602 $ 4,471 $ 854,073

Issuance of shares on exercise ofoptions 71,726 522 — 522

Balance - September 30, 2015 63,086,749 $ 850,124 $ 4,471 $ 854,595

2014Amount

Number ofcommon shares

issued andoutstanding

Common shares

Equitycomponent of

convertibledebentures Total

Balance - December 31, 2013 62,934,028 $ 848,940 $ 4,471 $ 853,411

Issuance of shares on exercise ofoptions 56,763 485 — 485

Balance - September 30, 2014 62,990,791 $ 849,425 $ 4,471 $ 853,896



6. Other costs



2015 2014 2015 2014

Employee salaries and benefits $ 55,848 $ 48,045 $ 166,710 $ 151,422Rent 34,648 33,852 103,040 101,922Realty and occupancy taxes and maintenance fees 16,810 16,930 50,294 50,196Utilities 8,093 7,343 22,526 21,571Purchased services 12,443 12,014 36,517 35,793Other inventories consumed 2,722 4,569 9,660 10,960Repairs and maintenance 5,722 5,726 15,996 16,284Office and operating supplies 3,442 3,298 10,241 10,207Licences and franchise fees 2,983 2,751 8,921 10,199Insurance 657 675 2,015 1,959Advertising and promotion 7,017 5,831 18,304 16,688Professional and consulting fees 1,689 1,435 4,543 5,211Telecommunications and data 1,246 1,114 3,785 3,734Bad debts 171 169 686 384Equipment rental 791 767 2,375 2,241Other costs 2,461 2,455 7,398 7,626

$ 156,743 $ 146,974 $ 463,011 $ 446,397

7. Net income per share

Basic

Basic earnings per share (“EPS”) is calculated by dividing the net income by the weighted average number of shares outstanding during the period.



2015 2014 2015 2014

Net income attributable to owners ofCineplex $ 21,520 $ 15,914 $ 57,525 $ 44,190Weighted average number of sharesoutstanding 63,086,262 62,987,992 63,064,784 62,965,606

Basic EPS $ 0.34 $ 0.25 $ 0.91 $ 0.70



Diluted

Diluted EPS is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all dilutive potential shares. Cineplex has several categories of dilutive potential shares. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the outstanding shares for the period), based on the monetary value of the rights attached to the potentially dilutive shares. The number of shares calculated above is compared with the number of shares that would have been issued assuming exercise of conversions, exchanges or options.



2015 2014 2015 2014

Net income attributable to shareholders ofCineplex $ 21,520 $ 15,914 $ 57,525 $ 44,190

Weighted average number of sharesoutstanding 63,086,262 62,987,992 63,064,784 62,965,606Adjustments for stock options 536,125 419,144 543,077 439,650

Weighted average number of shares for dilutedEPS 63,622,387 63,407,136 63,607,861 63,405,256

Diluted EPS $ 0.34 $ 0.25 $ 0.90 $ 0.70

8. Changes in operating assets and liabilities

The following summarizes the changes in operating assets and liabilities:



2015 2014 2015 2014

Trade and other receivables $ 6,735 $ 4,213 $ 45,041 $ 42,242Inventories 275 (1,371) (99) (1,000)Prepaid expenses and other current assets 2,137 (1,408) (4,647) (5,228)Accounts payable and accrued expenses (25,237) (21,294) (54,898) (69,006)Income taxes payable 6,783 820 7,094 214Deferred revenue (1,723) (1,298) (42,675) (34,547)Post-employment benefit obligations 110 132 177 211Share-based compensation 1,931 69 1,774 (10,613)Other liabilities (291) (609) (1,704) (1,530)

$ (9,280) $ (20,746) $ (49,937) $ (79,257)

Non-cash investing activities:Property, equipment and leasehold purchasesfinanced through accounts payable and accruedexpenses $ 16,670 $ 14,866 $ 16,670 $ 14,866



9. Segment information

Cineplex has two reportable segments, Exhibition and Media. The reportable segments are business units offering differing products and services, and managed separately due to their distinct natures. These two reportable segments have been determined by Cineplex’s chief operating decision makers.

ExhibitionThe Exhibition reporting segment includes all direct and ancillary revenues from theatre attendance, including box office, food service and gaming revenues, and the associated costs to provide those products and services, including substantially all head office costs. Also included in the Exhibition segment are theatre rentals and digital commerce rental and sales, and associated costs.

MediaThe Media reporting segment is comprised of the aggregation of two operating segments, Cineplex Media and Cineplex Digital Media. Cineplex Media consists of all in-theatre advertising revenues and costs, including pre-show, showtime, magazine and lobby advertising. Cineplex Digital Media is comprised of revenues and costs associated with the design, installation and operations of digital signage networks, along with advertising on certain networks. Aggregation of these operating segments is based on the segments having similar economic characteristics. There are substantially no inter-segment transactions. The Exhibition reporting segment does not charge an access fee to the Media reporting segment, and no overhead is allocated to the Media reporting segment.

In accordance with IFRS 8, Operating Segments, Cineplex discloses information about its reportable segments based upon the measures used by management in assessing the performance of those reportable segments. Cineplex uses EBITDA to measure the performance of its reportable segments. Management defines EBITDA as earnings before interest income and expense, income taxes and amortization expense. EBITDA is a non-GAAP measure generally used as an indicator of financial performance and should not be seen as a measure of liquidity or a substitute for comparable metrics prepared in accordance with Canadian GAAP. Cineplex’s EBITDA may differ from similar calculations as reported by other entities and accordingly may not be comparable to EBITDA as reported by other entities.

Three months ended September 30, 2015 Three months ended September 30, 2014

Exhibition Media Consolidated Exhibition Media Consolidated

Revenues $ 293,950 $ 34,296 $ 328,246 $ 266,998 $ 31,992 $ 298,990

EBITDA (i) 36,407 21,477 57,884 28,699 18,199 46,898

Depreciation and amortization 19,873 2,238 22,111 17,905 1,760 19,665

Interest expense 5,919 5,472

Interest income (46) (172)

Income taxes expense 8,461 6,019

Net income $ 21,439 $ 15,914

(i) The Exhibition reporting segment does not charge an access fee to the Media reporting segment for in-theatre advertising.



Nine months ended September 30, 2015 Nine months ended September 30, 2014

Exhibition Media Consolidated Exhibition Media Consolidated

Revenues $ 865,183 $ 98,388 $ 963,571 $ 815,168 $ 87,337 $ 902,505

EBITDA (i) 102,298 58,924 161,222 86,987 47,667 134,654

Depreciation and amortization 58,076 6,737 64,813 52,874 4,654 57,528

Interest expense 17,149 16,272

Interest income (134) (285)

Income taxes expense 21,950 16,949

Net income $ 57,444 $ 44,190

(i) The Exhibition reporting segment does not charge an access fee to the Media reporting segment for in-theatre advertising.

Cineplex’s cash management and other treasury functions are centralized; interest expense and income are not allocated to segments.

Income taxes are accounted for by entity, and cannot be attributable to individual segments.

Cineplex does not report balance sheet information by segment because that information is not used to evaluate the performance or allocate resources between segments.

10. Subsequent event

On October 1, 2015, Cineplex acquired the 50% of the issued and outstanding equity of Cineplex Starburst Inc. (“CSI”) that Cineplex did not already own, for approximately $21,000 cash. With the closing of this transaction, Cineplex now owns 100% of the issued and outstanding equity of CSI. The financial position and operating results of CSI will be consolidated in Cineplex’s financial statements beginning October 1, 2015.

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